The latest delay to the implementation date of Solvency II, which many now not come into force until January 2016, represents welcome breathing space for many insurers and reinsurers yet to make firm decisions on how to deal with legacy business and run-off portfolios.
That was one of the conclusions of a report by PWC called ‘Unlocking the value in run-off’. Dan Schwarzmann, partner at PWC, said that the delay will be welcomed by many companies affected by Solvency II as an opportunity to get things right before the deadline.
“For pure run-off operations and other potentially affected entities such as captives, the delay may provide welcome breathing space to determine their Solvency II approach as feedback to date suggests that many of these entities have not been fully engaged in the process,” he said. “This may be due in some part to a general lack of clarity in the proposed Directive.”
He went onto say that a survey conducted by the accountancy firm into the potential effects of Solvency II suggest it will likely lead to an increase in exit activity. “Indeed, we have had more conversations over the past year with providers of new capital looking to acquire run-off business than for some time,” Schwarzmann said.
The PWC survey revealed that ‘finality’ was now the most popular answer given by European respondents when asked about their strategic plans around run-off, replacing ‘capital release’ as the most cited reason.
“A greater appreciation of the potential impact of Solvency II may explain the increased desire for finality,” the report said. “Respondents perhaps recognise that long term run-off is not an economic option for some books of business. However, whilst finality is high on the radar for run-off businesses, the number of exits may have been limited by businesses postponing major decisions in these times of economic uncertainty.”
The report’s authors also said they expect more activity in terms of restructuring operations from mid-sized insurers and reinsurers in the next year, some of which have not previously appreciated the potential impact of a reorganisation or a disposal of legacy liabilities on their capital requirements.
Solvency II, delay, PWC, run-off