NAIC publishes Foundation Principles and Best Practices   The Restructuring Mechanisms Subgroup of the National Association of Insurance Commissioners has issued two draft publications on the insurance business transfers (IBT) and corporate divisions (CD), as authorized by various States, for the State insurance regulators to use in approving the IBT/CD transactions: Foundational Principles and Best Practices Procedures for IBT/Corporate Divisions. Learn more about what an IBT is and our view of the mechanism in our piece, Insurance Business Transfer Finality Getting Closer to Reality.   The Restructuring Mechanisms Working Group had released a white paper in December 2021 on restructuring mechanisms associated with transfers of legacy business. Although the draft white paper takes no position for or against IBTs/CDs, it provides a useful overview on the history of such transactions and considerations for regulators. The Subgroup’s recent publications address the expected level of reserves, capital expected after transfer, and the adequacy of long-term liquidity needs, among various other matters. The Best Practices Procedures for IBT/Corporate Divisions also includes monitoring companies after the transaction is completed. Observations on the Foundational Principles and Best Practices Procedures include: Policyholders should be left in the “same or a better position” after completion of the transaction. The Subgroup has requested comments on the term “no worse off” and how this is measured. The Foundational Principles further note that the transaction should not have any “adverse impact” on policyholders, including services, suggesting that the NAIC may recognize that in an IBT, an impact to the policyholder clearly arises (e.g. change in counterparty), but “no impact” is not the standard for approving an IBT. Prior to an IBT or corporate division transaction, an independent expert should conduct the following: an actuarial review of the reserves and capital (e.g. RBC and financial strength) before and after the transaction; the assets transferred to insurers involved are adequate to cover liabilities being transferred; consideration of any plans to liquidate another involved insurer or make changes resulting in an impact on capital and policyholders; and solvency assessment. (In a corporate division, an insurer is divided into two or more resulting insurers, and the dividing insurer’s assets and liabilities are allocated between or among the resulting insurers, without requiring policyholder consent.) The Subgroup requested comment on the use of an independent expert for corporate divisions. Prescribed conservative assumptions should be included in capital calculations to avoid the manipulation of capital thresholds. Capital reviews of the transaction should consider the following: - capital and/or reinsurance limits assessments should include quantitative analysis; - risk-exposure modeling; - horizon and confidence levels to address short term (1 year), mid‐term (5 to 10 years), and long term (relatively consistent with liability horizon); - stress scenarios and their relationship to capital adequacy; - impact on capital needs attributable to diversification in liabilities, asset mix; and amount and quality of “outside” existing inuring reinsurance and internal hedging. Prescribed conservative assumptions should be included in capital calculations to avoid the manipulation of capital thresholds. Consideration of the plans to consolidate, dividend or sell assets, liquidate or make other similar changes, and the resulting impact on capital, policyholders, reinsurers, and guaranty associations. The Best Practices Procedures further note that one way that IBT laws can differ from corporate division laws is that some states’ IBT laws, the liabilities of the transferee are segregated from the other liabilities not associated with such a transfer and under laws can be expected to be both self-sustaining (e.g. no more monies may be transferred to fund such liabilities under the terms of the transfer) and self-containing (e.g. cannot be used to cover liabilities not associated with the transfer). For IBTs or other transactions which will not have access to additional capital, an actuarial report of the adequacy of run-off reserves (gross and net) being transferred should include an analysis and comparison of stressed reserves under reasonable deterministic criteria/scenarios provided by the state of domicile; and if the reviewing authority requires additional capital, which is higher than the required reserve, the additional amount should be reported in special surplus. Comments on the publications were due on June 21. RiverStone submitted a comment letter specifically related to risk-based capital recommendations for run-off insurers as well as general comments on the Best Practices and Guidelines. We welcome continuing dialogue with regulators and other stakeholders on these issues. Posted: Oct 19, 2022

Some of RiverStone’s actuarial experts will be presenting at this year’s virtual Casualty Loss Reserve Seminar on September 13-15, 2021.  This key event is presented by the Casualty Actuarial Society and the American Academy of Actuaries.    James Kahn, Brad Tumbleston, and Wilson Townsend will present at a concurrent session entitled Estimating Loss and ALAE Reserves in the Challenging World of Construction Defects (CD) Risks by Consideration of Closed Payment Segmentation.  Their presentation will highlight key observations and techniques noted in their recently published reserve call paper: Segmenting Closed Claim Payment Data to Estimate Loss and ALAE Reserves for Construction Defects.  Click here to read the complete paper.    Key points of the presentation will include discussion about: The scarcity of accompanying CD literature within the publications of the Casualty Actuarial Society Ease of data compilation with the cited technique Observations with claim severity and length of time from report date to settlement/closure date Ability to cap historical closed claims and provide historical excess “loads” so as not to distort claims history for large claims; and Segmentation and projection of Allocated Loss Adjustment Expense (ALAE) by ultimate claim status The speakers will highlight how these techniques may lead to earlier understanding and adjustments of changes to data versus traditional methodologies.  Among the most critical factors of success for an insurance company is a strong partnership between their actuarial and claims departments.  This partnership is key to the understanding of construction defect liabilities. 

TORONTO, Dec. 02, 2020 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (“Fairfax”) (TSX: FFH and FFH.U) announces that it has entered into a binding agreement with CVC Capital Partners (“CVC”) to sell all of its interests in RiverStone Europe to CVC Strategic Opportunities Fund II. OMERS, the pension plan for Ontario’s municipal employees, has also agreed to sell all of its interests in RiverStone Europe as part of the transaction. The purchase price to be received by Fairfax on closing of the transaction is approximately US$750 million.   Fairfax will also be entitled to receive up to US$235.7 million post-closing under a contingent value instrument. Luke Tanzer will remain the Managing Director of RiverStone Europe and Nick Bentley, the Chief Executive Officer of the RiverStone Group, will remain on the board of RiverStone Europe post-closing. After closing, RiverStone Europe will also operate under the name RiverStone International and will seek to continue its successful track record of acquisitions and growth led by its existing management team. “We are very pleased to enter into this transaction with CVC,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax. “RiverStone Europe is an industry leader in run-off insurance services, and CVC’s scale and vision will give RiverStone Europe, under the continued leadership of Luke and his management team, the opportunity to further grow the business. Nick and Luke are also fully supportive of this transaction, based on their strong beliefs that it was the best way for RiverStone Europe to continue to grow and pursue run-off transactions. We wish Luke and all of the employees at RiverStone Europe much success in the future.   Fairfax remains committed to continuing to grow its other European businesses, including its Lloyd’s of London activities.” “I am extremely happy to partner with CVC in this next chapter of our development,” said Luke Tanzer, Managing Director of RiverStone Europe. “This transaction will provide us with a runway for further growth as we continue to offer the most trusted and effective run-off solutions in the insurance market. We look forward to joining the CVC family and benefitting from their deep experience of financial services, global network and long term pool of capital.” “As one of the largest global consolidators of non-life run-off insurance books, with a leading position in the UK and Lloyd’s market, embedded cash flows and a predictable financial profile, RiverStone Europe is ideally suited to CVC’s Strategic Opportunities platform, which specializes in backing established businesses in stable markets that have long term growth ambitions,” said Peter Rutland, Managing Partner and Head of Financial Services at CVC. “We have got to know RiverStone and Fairfax over many years, and are delighted to now have the opportunity to work with Luke Tanzer and his experienced team.” The transaction is subject to customary closing conditions, including various regulatory approvals, and is expected to close in early 2021. Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and the associated investment management. CVC is making this acquisition through Strategic Opportunities Fund II, a vehicle designed to invest in high-quality businesses that are suited to longer hold investment horizons. For further information contact: Fairfax: John Varnell, Vice President, Corporate Development at (416) 367-4941 CVC: Carsten Huwendiek, Global Head, Marketing & Communications at +44 207 420 4200 Click here to download a complete copy of this press release from the Fairfax website.

As we continue to navigate through this unprecedented time, we want to share some of the steps that we are taking to maintain business continuity and the support of our clients, business partners and teams across the U.K and U.S. Last week saw the closure of all our U.K and U.S offices and the activation of our business continuity plans. We have invested in better communication platforms and our ability to work remotely, but not in isolation with regular team calls via both telephone and video taking place. Our response plan We designated various task forces both in the U.K. and the U.S. to ensure we continue to provide seamless operations and first-class service. We established a support network to ensure our employees have access to the right services to help them navigate this difficult time and to look after their mental well-being. We are incredibly proud of everyone's efforts in keeping the company running seamlessly, delivering on our promises and the tremendous team spirit demonstrated by all. We remain confident in our ability to continue to operate remotely, keeping open communications with all our clients, business partners and teams across the U.K and U.S and would like to thank everyone for their outstanding efforts.

RiverStone is pleased to announce that, with effect from 31 January 2020, a portfolio of reinsurance business has been transferred from the UK branch of Aioi Nissay Dowa Insurance Company, Ltd (“ADI”) to RiverStone Insurance (UK) Limited under Part VII of the Financial Services and Markets Act 2000. This transfer provides ADI with legal and economic finality in respect of the transferred portfolio and enables ADI to focus its resources on its core business. For further information please contact: Luke Tanzer Managing Director RiverStone Insurance (UK) Limited Luke.Tanzer@rsml.co.uk