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Breaking the shackles: Run-off deals

The transfer of Equitas's liabilities to Berkshire Hathaway, as well as two other recent run-off deals, should bring big benefits to those that are now rid of troublesome liabilities. But the deals could also yield big returns for those taking on these books of business. By Michael Loney and Verena Horne.

Above is a link for you to download the 2007 guide to UK companies in run-off, published by Reactions magazine.

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______________________________________________________________________ Three deals within the space of a month removed uncertainty about liabilities that had dogged three European companies for years.

In October 2006 Equitas, the run-off vehicle for the pre-1993 liabilities of Lloyd's, agreed a deal for Berkshire Hathaway to reinsure all its liabilities and provide $7bn of extra cover. This came hot on the heels of Berkshire also agreeing to buy Swiss reinsurer Converium's run-off North American operations in a $300m deal, and UK insurer Royal & SunAlliance selling its US run-off operation to Arrowpoint Capital, a company set up by its US management, for a deferred consideration of £158m ($298m).

The Equitas deal in particular stunned the market. Equitas is the best-known and most talked about run-off business in the world. When it was set up in 1996 many predicted it would not survive, such was the uncertainty about the adequacy of its reserves.

"If we can see the sale of Equitas, we can see anything," VJ Dowling, managing partner at stockbroker VJ Dowling & Partners, remarked at a conference in November.

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