Global Insurance Run-off Market Passes $700 billion

The value of the international non-life stopped business market passes US$700 billion, according to the newest research from PwC.

PwC’s Global Insurance Run-off survey valued the magnitude of North American non-life run-off liabilities to be estimated at US$350billion – almost equivalent to the remaining part of the world’s at US$380billion (United Kingdom and Continental Europe still roughly regular with last year at US$275billion while Asia, South America and others totalled US$105billion).

The survey showed that the recent drive in proactive management and disposal of legacy business is set to go on, with the most of all global respondents forecasting they will take on restructuring or leave activity in the next 3 years.

Repeating 2016, non-life run-off business activity in 2017 was very strong, and PwC envisages a healthy pipeline of contracts continuing in 2018 inspired by a range of factors.

These include further drive from Solvency II in Europe, global (re)insurers who focus increasingly on core underwriting and fulfilling an urge to gain either full legal or economic finality for their legacy liabilities via insurance business transfers or reinsurance arrangements. Capital efficiency, however, is still a central theme across all regions.

Key findings

– The lines of business probably to be disposed of in the next 2 years are employers’ liability and workers’ compensation;

– Not less than half of the survey respondents said run-off and legacy management is of high importance for their Executive Board;

– There is expection of Continental Europe to be the most active territory in terms of amount of deals, after which UK and the US follow;

– Over a one-third of all respondents hope to undertake restructuring activity in the next 3 years, using insurance business transfers to achieve their goals.

Dan Schwarzmann, head of Market Initiatives and Industries, PwC UK, said: “It is obvious from our survey that the international run-off market is till fully buoyant and there’s growing recognition among (re)insurers of the benefits of proactively managing legacy books.

This is complemented by an growing sophisticated and well-capitalised category of run-off consolidators that have lately been supplemented by a certain amount of new entrants, who are anxious to offer exit solutions for owners of discontinued business.

The results of our past surveys have shown Continental Europe becoming a growing active run-off market and 2017 has seen a step change in this territory which looks set to continue.”

Other key findings

– The increased concentration on run-off is inspired by various factors and key objectives include releasing capital, managing costs and leaving legacy lines so as to focus on main underwriting aims. However, challenges remain and survey respondents see adverse loss development, the regulatory environment and permission to exit mechanisms as obstacles to achieving their goals.

Commenting, Andrew Ward, director in PwC’s Insurance Liability Restructuring team, said: “The run-off and legacy management markets are at their top active for several years and the extent of restructuring activity looks set to be notable in the near term. In 2018 it will be good to see if growing United State initiatives around Insurance Business Transfers and Brexit restructuring in Europe also offer more momentum to the run-off community.

“There are numbers of external factors affecting the way insurance is written, new technology inclusive, AI and increase of cyber risk. These developing underlying risks inevitably will drive change in the future run-off market, but we are sure the legacy sector will thrive, never stop to innovate and deliver value for all stakeholders.”

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UK insight

– 68 percent of UK respondents said they are likely to engage in restructuring activity in the next 3 years

– The size of run-off liabilities in United Kingdom and Irish markets has grown as a result of ongoing uncertainty around the Ogden discount rate

– UK survey respondents see political uncertainty, including Brexit, as tendency to be a notable factor influencing or impacting run-off in the next 2 years. It’s not yet certain what impact the UK’s separation from the EU will have on the value and region of European run-off. An unsure political landscape could act as a catalyst for restructuring activity including run-off portfolios, as (re)insurers re-value the lines of business they want to prioritize.

– UK respondents pin-pointed a bigger challenge presented by the regulatory environment than those in United States who focus more on adverse loss development in achieving run-off goals.

Dan Schwarzmann concluded: “Our UK respondents have mentioned political uncertainties, including Brexit, as likely main influences on run-off in the next 2 years. Our experience is that the uncertainty around Brexit has focussed the attention of (re)insurers and, due to this, planning, and in some occasion, related restructuring, is well underway. However, any notable Brexit contribution on the run-off sector is yet to materialise.”


Credit : PWC

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