11 September 2017 Insurance

11 bidders aiming for SOVAG portfolio

Some 11 bidders have thrown their hats in the ring to acquire the portfolio of Schwarzmeer und Ostsee Versicherungs AG (SOVAG), the Germany-based insurer, which is being restructured by Arndt Gossmann, the company’s chief executive since May this year.

SOVAG, which was founded by the Soviet Union in 1927, has had a convoluted history. These days, it writes a book comprising one third international reinsurance business, one third European MGA business and one third domestic German insurance business.

Russian gas giant Gazprom is now its majority shareholder with a stake of just over 50 percent; other shareholders are Sogaz Insurance, a Russian insurer that specialises in energy risks, and Volga Group, a private wealth management fund. In order to support the restructuring process, shareholders strengthened the capital base of SOVAG by €10 million ($12 million) in February 2017.

Gossmann, the former chief executive of run-off specialist DARAG and previously the head of insurance restructuring at KPMG, has been brought in to restructure the business, in essence by selling off its existing underwriting portfolio, thereby freeing up capital that can be used to kick-start a new strategic direction at the firm.

He told Monte Carlo Today that the strategic change in SOVAG has been triggered by two things: Gazprom becoming its majority shareholder in 2015 and the implementation of Solvency II, which brought into sharp focus the capital efficiency and profitability of much of the business being written in the insurer.

“The company had a broad mix of business and no critical size in most lines. It needed to be re-set, and the cleanest way to do that will be to wind down or sell its existing portfolio. That will free up capital and leave it in a viable position for the shareholders to decide what to do next,” Gossmann said.

The sale looks the most likely option at the moment. Gossmann said he expects the final offers for the portfolio to be in by early October. He anticipates the whole process will be completed by the summer of 2018, after which he will leave the company and allow the shareholders to determine the firm’s new strategic direction. He stresses this is quite a tight timeline for such a process but he is confident the timeline is achievable.

“After my time with KPMG, this is back to bread and butter work for me,” he said. “It is a tough schedule and it will be a busy time but it is achievable.”

Gossmann would not be drawn on what he might do after he has handed a restructured SOVAG back to its shareholders, but he would not rule out “something in the insurtech space”.

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