Picking up the pieces when insurers run into trouble
Dubliner Karl Wall has spent 30 years guiding insurance firms through their final days. Now he is seeking to raise $100 million for a new venture
Karl Wall: “It’s greed – that’s what usually causes this stuff.”
Karl Wall must be a glutton for punishment. The Dubliner is leaving his role on the board of Nasdaq-quoted reinsurance and run-off specialist, Enstar, to start again. Wall is seeking to raise about $100 million from private equity backers in New York and Chicago for a new business that will specialise in taking over and winding up insolvent insurers.
He admits that no-one starts out in life dreaming of a career in this field, where you are effectively working to put yourself out of a job. “The whole idea of working for a company that is going out of business, and you are putting it out of business, is counter-intuitive to what people consider a career,” he says.
Nevertheless, he has spent more than 30 years guiding insurance businesses through their final days in both London and New York. So much so that recently, the Association of Insurance and Reinsurance Run-Off Companies (AIRROC) gave him its man of the year award.
What he does is work with insurance companies whose operations have been discontinued and whose business is being run-off. “These companies have policies, so we simply manage their claims,” he explains. “Depending on what type of business they were in, they could be short tail, like the property business, or long tail like asbestos, environmental or workers’ compensation.”
The practice is more common in the US, UK and Bermuda, but less so on mainland Europe. “The likes of the Swiss, the Germans and the French like to hold on to their companies more, they are much more concerned about reputational risk, so they prefer to keep things in-house and try to fix it themselves,” he says. “But that’s not a good use of capital if someone is willing to pay you and take it off your hands.”
For the most part, companies end up in this situation because they have gone under. In some cases, they may be operations that are no longer needed as a result of a merger or takeover, or it may simply be one line of business in an otherwise profitable group that has run into trouble.
“It’s a combination of different things,” he notes. “Back in the eighties, it was because they – insurance companies – went out of business, they were mismanaged. A whole slew of them in the US and Bermuda all tanked because they mismanaged their business, they underpriced it.”
Wall observes that a common theme has run through the businesses with which he has dealt over the past three decades. “It’s greed – that’s what usually causes this stuff,” he says.
He draws parallels between what happened to the US insurance sector in the 1980s and the sub-prime crisis that triggered the financial meltdown from which most western countries are still recovering. In this case, managing general agents took the place of the mortgage brokers.
“Managing general agents wrote business, but they had no incentive to write proper business,” he says. “They were paid commissions, therefore volume was the name of the game.” They just assumed that the risks they were underwriting would be passed on to reinsurers, but it did not always work like that.