PwC survey estimates European non-life run-off market set for seventh year of growth to €247bn

Download the Survey HERE

Published at 10:00 AM on 14 September 2015

PwC’s 9th annual survey of discontinued insurance business in Europe, launched today at the Monte Carlo Reinsurance Rendez-vous, estimates the non-life European legacy insurance market to comprise run-off reserves worth €247bn, an increase of €5bn compared to last year.

A key factor in the increase in reserves has been in the UK and Irish markets where the trend of strengthening long-tail employers’ liability reserves has continued. In addition, and in common with other European counterparts, there is an increase in discontinued insurance business as insurers classify certain business lines as being in run-off much earlier in their life cycle.

The survey, which is based on responses from a cross-section of European risk carriers and service providers, sees 18% and 43% of Continental European respondents rating run-off and legacy management as a “high” or “medium” priority respectively on their board’s agenda. This compares to 38%, high priority, and 33%, medium priority, of the UK and Irish respondents. Furthermore, as the run-off market is no longer witnessing so many distressed situations, almost half (47%) of the respondents say that their overall business strategy would be the most likely factor to increase the likelihood that they would implement an exit or restructuring solution for a legacy portfolio.

Ahead of its implementation on January 1st 2016, preparation for Solvency II is the top challenge facing Continental European (re)insurers with run-off business. However, a lack of Board level engagement is ranked as the second most pressing challenge for legacy business managers.

Dan Schwarzmann, head of solutions for discontinued insurance business at PwC, said:

“The European insurance run-off sector has seen plenty of activity and we are certain run-off liabilities will continue to grow. Solvency II implementation is promoting a sharper focus on capital and providing an impetus for insurers to assess the future of their non-core portfolios.

“The current vibrant M&A scene in the live insurance market should also create future activity in the run-off sector as merged companies focus much more on what books to discontinue. Our survey respondents indicate they expect to continue to see significant run-off M&A activity involving small-mid size portfolios (€10m-€100m) over the next few years and we believe there is also scope for larger deals to come to market.

“The run-off market has a history of innovation and, as liabilities continue to grow and run-off and legacy management moves higher up the list of priorities for Continental European Boards, we expect to see more creative ways of providing certainty and finality to run-off books.”

Other key findings from PwC’s 9th survey on discontinued insurance business in Europe:

The greatest challenges facing Continental European (re)insurers with run-off business are:

1)       Preparation for Solvency II []

2)      Board level engagement for legacy business [new entry this year]

3)      Operational costs []

4)      Adverse loss development []

5)      Maintaining reputation [↓]

6)      Capital constraints [↓]

7)      Lack of skilled resource [-]

8)      Access to exit mechanisms [↓]

[if !supportLists]·         [endif]91% of respondents think there will be five or more disposal transactions in Europe over the next two years (68% think there will be more than ten). The UK, Ireland and Germany are expected to be the most active territories for these transactions.

[if !supportLists]·         [endif]55% of respondents think the implementation of Solvency II will lead to an increase in their workload/ opportunities.

[if !supportLists]·         [endif]On balance, the industry believes the current landscape is a helpful environment for (re)insurers looking to deal with their run-off liabilities (59% believe it is helpful).

Ends                                                                                   

Notes to editors

[if !supportLists]·         [endif]Dan Schwarzmann and Andrew Ward are available for interviews. Please contact Ellie Raven on +44 (0) 207 804 3553 or ellie.raven@uk.pwc.com

[if !supportLists]·         [endif]For more information on the report, please visit: www.pwc.com/surveyofdiscontinuedinsuranceeurope

 

About PwC
PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

©2015 PricewaterhouseCoopers. All rights reserved.