Loss portfolio transfers are reinsurance contracts where a self-insured organization or an insurer typically cedes legacy liabilities to a reinsurer. The reinsurer assumes and accepts the ceding entity’s current and future claim liabilities, including the loss reserves. In exchange, the ceding entity agrees to pay the reinsurer for those reserves, often at a premium over the present value of the reserves, but at a discount to what the reinsurer believes it can earn over time by investing those reserves today.

Because loss portfolio transfers generally transfer risk, and specifically remove liabilities from corporate balance sheets, organizations and insurers should consider loss portfolio transfers as a creative tool to resolve large risk pools in a fair and efficient manner. We have observed a growing interest in recent years of insurers of defendants in mass torts, and self-insured defendants in mass torts, engaging in loss portfolio transfers regarding their liabilities in those cases.

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