Opportunities in challenges: a post Baden-Baden report
On the brink of 2016, Baden-Baden underlined some of the industry’s challenges that come in hand with interesting opportunities yet again
Just like all annually reoccurring industry meetings, Baden-Baden holds the special heart-warming charm of the familiar. Anticipation has long become an inherent part of the event and the town’s rich tradition as a famous resort with its unique landscape and scenery adds to it. Every year, the openness between participants is impressive to experience. Of course, no secrets are shared, but nobody tries to hide anything either. The result is trust. And this is the reason why these meetings are important, because our industry can only function on the basis of trust.
The predominant issue of conversation this year was the fact that the industry is witnessing a soft market, a situation not likely to change in the near future. Markets will remain soft for at least three years before rates might start to rise again.
From there, conversation quickly turned to market consolidation. The fact that M&A activity is increasing was beyond dispute, and various speculations arose about the proportions this trend will assume in the future and about possible next pairings. Competition will remain fierce among insurers during the next year.
Solvency II, being one of the drivers for consolidation, has been another key subject of conversation at Baden-Baden, although it is a done deal. And hence, the focus was less on the challenges than on the solutions. A new hands-on mentality was palpable and it was based on the realization that what, in 2014, was a theoretical discussion, this year was a very practical one. The change in perspective is spearheaded by tier-one insurers, which are already fully Solvency II compliant, so they now have started to focus on optimization. The discussions around capital management have become more sophisticated and more widespread at the same time. By now the industry is well aware of the merits of capital efficiency. Especially where run-off is concerned, conversations have changed from a theoretical discourse to an exchange of experiences.
Baden-Baden made it clear: proactive run-off is about to become best practice. I am expecting the total volume of run-off transactions to reach 4 billion euro over the next 12 months, and I am certain that by next year’s or even the year’s after Baden-Baden meeting we will not have seen the peak. The majority of smaller or mid-size insurers are still in the middle of implementing Solvency II. They still have not tapped into the benefits run-off has to offer. That is why, in my view, for run-off, the best is yet to come. It will take around three years after Solvency II’s implementation until we have reached its high.
By: Arndt Gossmann, chief executive officer, DARAG.
