Articles - Ruxley-Solvency II creates problems for US APH liabilities

Ruxley research finds Solvency II will create a capital and reporting crunch for European holders of US APH liabilities

 Recent research by Ruxley Ventures*, into the impact of Solvency II on those European insurers that hold US Asbestos Pollution and Health Hazard (APH) liabilities, shows they will be subject to greater scrutiny of their financial accounting of these liabilities which in turn may require such insurers to increase their reserves to cover them.

 The research shows:
 • US insurers - subject to the onerous reporting requirements of US GAAP - have had to reassess and increase the level of their APH reserves.
 • The Solvency II financial reporting regime will expose European insurers to similar pressures regarding their APH liabilities as those experienced by their US counterparts. This will have resourcing implications in terms of both sourcing and managing data to fulfill the disclosure requirements as well as increasing capital requirements.
 • Initial over-reserving, which occurred when the problem of US APH was uncovered in the late 1980s and early '90s, has encouraged European insurers to disengage from actively managing these portfolios – leaving a surplus that may be reduced or wiped out by Solvency II.
 • Solvency II is likely to be a catalyst for many European insurers to find a permanent solution for the old problem of US APH liabilities.

 John Winter, Chief Executive of Ruxley Ventures, said: “Given the insurance industry’s crisis over APH related claims occurred more than twenty years ago, many of today’s managers have little experience of, or inclination for, dealing with them. I believe Solvency II will push the issue firmly back up their agenda.

 “Our research suggests that European insurers with US APH liabilities may be over reserved. Ruxley’s view is that there is an opportunity for insurers to avoid the burden imposed by Solvency II of having to increase reserves and instead achieve an instant profit release. This would be done through a transfer of the business to a specialist APH acquirer such as Ruxley. Given that Solvency II’s implementation is less than 18 months away we advise businesses with APH liabilities to start looking at their options now.”

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