European run-off set for sixth year of growth

The European run-off market is expected to grow for the sixth year in a row, with transactional activity set to reach a peak in 2015 as Solvency II has a material impact on the number of deals coming into the market, according to PwC’s annual survey.

PwC’s 8th Survey of Discontinued Insurance Business, launched at the Monte Carlo Rendez-Vous, reveals that the European run-off market is now worth €242 billion, an increase of €7 billion from 2013. The majority of this increase has come from German and Swiss run-off books, as focus on run-off business continues.

PwC predicts that transactions will peak during the coming year as Solvency II drives a renewed focus on core business and leads to organisations deciding to exit non-core lines.

The report, which is based on responses from more than 200 organisations, reveals that two thirds are increasing their focus on dealing with underperforming lines of business due to Solvency II.

Of companies who have considered an exit for their run-off, nearly 60 percent have considered a sale. The UK and Germany are expected to be the most active territories for disposal transactions in the coming year. More than eight in 10 respondents are anticipating five or more disposals to occur in the next two years. Most people expect that likely portfolio sizes to be disposed of will be less than €100 million.

Dan Schwarzmann, head of PwC’s solutions for discontinued insurance business, said: “It has been another busy year in the insurance run-off sector and we expect this activity to continue. The market has grown to €242 billion this year and we expect it to grow further as a result of the impact of Solvency II.

“There is likely to be a steady flow of companies attempting to dispose of, or exit from, legacy business that will not be capital-effective in their post-Solvency II balance sheets. Our survey also highlights that balancing reputation with the desire for exit remains a key concern among continental European insurers.
“Despite the positive outlook for deals activity in the market the survey highlights that there remains some unease about how regulators across Europe will treat exit activity. The stakeholders in the run-off industry need to continue to work together to provide policyholders with optimum benefits.”