Market notes · · 2 min read
A 1983 reinsurance book took 24 months to leave a balance sheet
A run-off book from 1983 needed a 24 month Part VII transfer. Why small legacy portfolios stay put and why books below roughly $50m lack a standard exit.
A reinsurance portfolio that last wrote business in 1983 finally left its balance sheet in June. It held under $25m of assets, and the Part VII took 24 months.
A Part VII is the court-approved process in the UK for moving a book of insurance business from one insurer to another. A book like this one is called run-off: no new policies are written, but the owner keeps holding capital and paying claims until the last liability is settled.
What the transfer cost
Carrick's COO said afterwards that the cost of the transaction sat badly against the reserves being transferred, meaning the money set aside to pay the claims still to come. The COO also asked regulators to find a way for smaller balance sheets to be moved at a proportionate cost.
That is the mid-market problem, said out loud by someone who has just paid for it.
Why small books stay put
The legal, actuarial and regulatory cost of a legacy transfer barely moves with the size of the book. A $500m portfolio and a $20m portfolio need most of the same machinery. It works like a cover charge at the door: the same whether you come in for one coffee or a full dinner.
So the small one stays where it is, quietly holding capital against liabilities nobody is writing any more, until somebody can be bothered.
We spend much of our week talking to people sitting on exactly those books. None of them think the risk is the hard part. The hard part is that below roughly $50m there is no standardised route out.
The route we are building
A quota-share cession is an arrangement where the insurer hands over a fixed percentage of a portfolio's premiums and losses to a reinsurer. Here the counterparty is a vault, and ring-fenced means its assets are kept apart from everything else.
That route is what we are building at NextBlock RWA: a quota-share cession into a ring-fenced vault, minimum about $5m, issuance cost under $75k. V1 is in testnet on Base, Coinbase's layer 2.
Forty-three years is a long time to wait for a buyer.
In plain words:
Moving an old, closed reinsurance book costs about the same whether it is big or small, so the small ones tend to stay where they are. Their owners keep holding capital against liabilities nobody is writing any more. A standardised route out for books below roughly $50m is what is missing.
Information only. Not an offer or solicitation.