15 September 2014 Insurance

Solvency II inspires capital management

Re/insurers have become increasingly sophisticated in the past 18 months in the way they view and are willing to use run-off as a strategic and capital management tool, believes Arndt Gossmann, chief executive of DARAG.

The legacy insurer, which was acquired by investment firm Keyhaven Capital Partners earlier this year, has completed 18 run-off transactions in its history and it estimates that the business contracts it signs in 2014 could double the $50 million it completed in 2013.

Gossmann said the forthcoming implementation of Solvency II is now the key driver of run-off transactions in Europe. Re/insurers are now actively looking to manage its implications meaning the enquires he is getting are much more specific and sophisticated compared with previous years.

“The focus on capital management within companies is greater than it has ever been and with the specific deadline of 2016 now in place for Solvency II that has focused attention on finding tangible solutions,” he said. “Everyone is looking for ways in which they can manage capital better and run-off is a potential solution for some companies.”

He notes that some larger businesses have invested in establishing dedicated teams to manage and analyse capital management. “The level of professionalism and sophistication is so much higher now,” he said.

This has meant the nature of the questions fielded by DARAG are much more specific and the run-off specialist is keen to ensure it is as flexible and helpful as possible in trying to help clients fund the solutions they need.

“The conversations we are having go into a great deal of detail and are certainly more concrete than they were a year ago,” Gossmann said. “Clients want the complete solution and absolute certainty and that is what we must look to provide. We are also being as responsive as we can in creating a solution that fully responds to all specific requirements of our client."

Gossmann said that the majority of deals in the run-off business happen in the second half of the year. It is, therefore, early days in terms of predicting exactly how many deals DARAG will sign this year but he is bullish.

“We have a solid pipeline of deals and a number of concrete inquiries we are dealing with,” he said. “I believe that we could double the amount of business we do this year compared with last year. It is a very positive time.”

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