Legacy Liabilities Exit Solutions

May 03, 2019

Many companies have, over time, accumulated significant amounts of accrued contingent liabilities, either through normal continuing operations or as a result of one or more acquisitions. These liabilities often arise from the assumption of risk in the form of large deductible or self-insured programs for workers' compensation, general liability, professional liability and other similar exposures. These balance sheet liabilities can have a material impact on a company’s earnings due to the uncertainty of the related amount and timing of payments for legal expenses or indemnity payments to third-party claimants. 

Loss Portfolio Transfers (LPTs) are structured transactions that package up and transfer a portfolio of known and unknown, or contingent losses to a commercial insurance company in exchange for a fixed amount of consideration or premium. With an LPT, the company is relieved of its balance sheet liability (as well as any related collateral) and as a result can clean up its balance sheet and achieve certainty of expense for what previously was uncertain and potentially volatile expense recognition.