Challenge
A major European insurer was seeking to offload legacy liabilities from discontinued lines of business written in the UK: US asbestos, pollution and health hazard (APH) exposures, as well as UK asbestos and other disease and injury exposures, such as noise-induced hearing loss. The non-latent claims in this portfolio also spanned multiple lines well into run-off. In advance of taking the portfolio to the legacy market, the insurer sought an independent review of the reserve requirements.
Approach
Comprehensive actuarial analysis: The review entailed a range of actuarial techniques being applied. For the UK asbestos exposures, a frequency-severity approach was used, based on the Institute and Faculty of Actuaries’ UK Asbestos Work Party models and tailored to the insurer’s specific exposures. Frequency-severity models were also applied to other UK disease claims. For the US APH claims, we combined ground-up exposure modelling of underlying insureds and cedants with selected industry benchmarks. Non-latent claims were reserved using traditional actuarial approaches.
Collaborative engagement with potential acquirers: Milliman undertook the review and worked with the client in engaging with interested buyers. We supported strategic discussions to clarify the underlying reserve estimates and risk uncertainties.
Impact
Informed decisions: Our review uncovered areas of potential redundancy and insufficiency in the client’s existing reserves, enabling a more accurate assessment of transaction costs. Our report was disclosed to several interested buyers, providing detailed insight into the claim drivers and reserves.
Successful legacy transaction: Ultimately, the client was able to find a suitable buyer for the business. We helped facilitate the sale of the portfolio by enhancing confidence in the reserve estimates and assessing the inherent uncertainties. Our report was noted as being very helpful to both parties, providing clarity on the magnitude of the uncertainties and limitations of the assessment.