77% 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, which was launched today [12th September] at the Monte Carlo Reinsurance 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 twelve months have been extremely busy for the European run-off market and PwC expects activity to continue at least at its current pace.
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81% of respondents predict that Europe will see more than ten disposals of legacy business portfolios over the next two years
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Over a fifth of respondents (21%) predict more than thirty such disposals with more than two thirds (68%) estimating the most commonly disposed portfolio of liabilities will be between €11m and €100m.
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Releasing capital is the number one objective of companies’ strategic run-off plans
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Board engagement is seen as the main challenge facing Continental European (re)insurers with run-off business, with respondents revealing a dip since last year
PwC estimates the overall size of the European non-life discontinued business market remains flat at just under €250bn.
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.
The survey, carried out in July 2016, sees no immediate impact following the UK’s decision to leave the European Union. However, depending on amendments to the passporting rules, some companies may restructure as they re-evaluate the best location for their business.
Andrew Ward, director in PwC’s Solutions for Discontinued Insurance Business team, commented: “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 really 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 to see this trend continue for some time as Solvency II becomes embedded within middle tier and more niche (re)insurers.”
Other key findings from PwC’s 10th Survey of Discontinued Insurance Business in Europe:
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The UK, Germany, France and Benelux and Eastern Europe are the territories in which survey respondents expect most disposals to occur
The current estimated size of the non-life European legacy insurance market:
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Germany and Switzerland €113bn
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United Kingdom €49bn
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France and Benelux €41bn
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Other Western Europe €28bn
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Nordic region €10bn
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Eastern Europe €6bn
The top three challenges facing Continental European (re)insurers with run-off business are:
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Board level engagement for legacy business [#2 in 2015]
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Solvency II compliance [#1 in 2015]
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Adverse loss development [#4 in 2015]
The practical implications of Solvency II for Continental European (re)Insurers with run-off business:
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Increased focus on dealing with underperforming lines of business
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2=. Increased focus on exit options
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2=. An increase in the cost of capital
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Consolidation of run-off portfolios and development of operational centres of excellence
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