12 September 2016 Insurance

Run-off market flat but solid growth anticipated by participants

PwC estimates the overall size of the European non-life discontinued business market remains flat at just under €250 billion ($281 billion). But a survey of market participants shows they expect strong growth in the coming years.

PwC said that reduced volumes of legacy business in the UK—prompted by factors including persistently low interest rates and the lack of major losses in the London Market—have been offset by increases in run-off in Eastern Europe and Germany.

Seventy-seven percent of respondents to PwC’s 10th annual Survey of Discontinued Insurance Business in Europe expect to engage in exit or restructuring activity by 2019.

The report, launched today (September 12) at the Monte Carlo Rendez-Vous, 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.

The past 12 months have been extremely busy for the European run-off market and PwC expects activity to continue at least at its current pace.

Some 81 percent of respondents predicted that Europe will see more than 10 disposals of legacy business portfolios over the next two years.

More than a fifth of respondents (21 percent) predicted more than 30 such disposals, with more than two-thirds (68 percent) estimating the most commonly disposed portfolio of liabilities will be between €11 million and €100 million.

Andrew Ward, director in PwC’s Solutions for Discontinued Insurance Business team, said: “Europe’s run-off market has had an exceptionally busy year and the transaction environment continues to thrive. Board level engagement on legacy business is still a challenge for Continental European insurers in particular, but the volume of deals we have seen in the UK and to some extent on the Continent shows that legacy is in the spotlight for many re/insurers.

“Solvency II has focused attention on the most effective use of capital and is increasingly generating opportunities for acquirers of run-off. Insurers with legacy business are beginning to make decisions around the capital benefits associated with disposing of discontinued books.

“We expect this trend to continue for some time as Solvency II becomes embedded within middle tier and more niche re/insurers,” he added.

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