Solvency II boosts the run-off market

The run-off market is hitting new highs as large insurers execute their post-Solvency II strategies—and more deals and innovation are in the pipeline for this growing market, as Intelligent Insurer discovers.

After years of waiting, the market for run-off or discontinued business is heating up in Europe as Solvency II prompts insurers and reinsurers to take a close look at their operations.

Arndt Gossmann, chief executive of specialty run-off insurer DARAG, said the run-off market in Europe has undergone a seismic shift in 2016, with both the number of deals and their size increasing exponentially.

In total, Gossmann predicts a transaction volume of over €4 billion ($4.5 billion) in 2016 and the first in a series of run-off deals worth more than €1 billion ($1.12 billion) as the market reaches a new peak.

“We always thought that Solvency II would trigger a lot more run-off activity and stimulate the market and that has certainly happened for real this year. There was an increasing level of activity in 2015 but in 2016 it has gone through the roof,” Gossmann said.

He added that the legacy market has seen €2.5 billion ($2.6 billion) worth of deals so far this year with an average transaction size of €200 million ($224 million). To put this in context, in 2014 the average deal size was just €20 million ($22.4 million). During the whole of 2015, DARAG added some €299 million ($335.7 million) of new business to its portfolio, increasing its liabilities under management to €376 million from €77 million ($422 million from $86.5 million).

PwC’s 10th annual Survey of Discontinued Insurance Business, found that 77 percent of respondents in Europe expect to engage in exit or restructuring activity by 2019.

The report predicts that sales of legacy liabilities to specialist run-off acquirers and group restructurings through business transfers will be the key tools to unlocking value for owners of run-off business.

Read the full story  here.