PRO Insurance Solutions

Commutation

Commutation has become an increasingly important part of business strategy for both live and run-off insurers and reinsurers over the last few years. PRO’s team offers commutation solutions to companies and Lloyd’s syndicates whether they are seeking to limit exposures or accelerate their (re)insurance asset collection.

Experienced in the most complex aspects of the major international insurance and reinsurance markets, we have built up a wide network of key contacts in the company, Lloyd’s and broking communities. Added to this we offer a detailed understanding of all the market issues, including asbestos, environmental pollution and health hazard losses.

The benefits

The clear benefits of commutations have led to substantially increased activity.

Assumed or Inward commutation allows clients to:

• Exit from specific lines of business and specific business relationships with adverse claims deterioration
• Reduce the potential for claims deterioration
• Reduce the size of portfolios in preparation for finality solutions (eg sale)
• Achieve improved balance sheet positioning by releasing reserves.

How we work

On every project, our first priority is to get to know our client’s business in order to understand their exact requirements – this is critical to the commutation process. Before embarking on a commutation, we will conduct a thorough analysis of the book of business to:

• Establish a clear understanding of the number and nature of policies written and reconcile these with the counterparty
• Reconcile all financial aspects of the book, including open balances, known case reserves, and IBNR
• Calculate the present value, payout patterns, and investment income assumptions
• Where relevant advise on the extent to which the subject commutation may have adverse implications for the client’s own reinsurance programme, and devise measures to mitigate lost reinsurance
• Carefully draft commutation settlement and release agreement to ensure absolute clarity.

Throughout the process, our commutation specialists use a proven method of reaching favourable settlements through face-to-face meeting and written submissions.

We ensure the counter party is engaged at an early stage to determine whether they are willing to discuss a commutation and whether their quality of data will enable realistic negotiations

Fees

Our fee structure varies according to the needs of our clients. We can operate on a competitive hourly rate with agreed budgets, or link remuneration to the ultimate result of the commutation set by a benchmark agreed in advance.

Our team

We have a team of more than 60 specialists dedicated solely to delivering clients’ commutations strategies. We have completed commutation projects ranging from single policy commutations to large global commutes involving over 40,000 contracts. In the last three years, our team has successfully concluded over 500 commutations, involving over 100,000 contracts and generating over $200 million in collective balance sheet gains for our clients.