Exit or restructuring activity in on the up, according to a PwC survey, with 77 percent of respondents saying they expect to engage in it by 2019.
The new survey, Discontinued Insurance Business in Europe, predicted 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 in run-off business.
According to PwC, the past year has been “extremely busy” for the European run-off market, and it expects activity to continue at its current pace.
The survey also revealed that 81 percent of respondents predict that Europe will see more than 10 disposals of legacy business portfolios over the next two years.
It found that the number one objective for companies using a strategic run-off plan was to release capital.
Board engagement was named as the main challenge for Continental European reinsurers and insurers with run-off business.
PwC estimated that the overall size of the European non-life discontinued business market remains flat at just under €250 billion.
The survey, carried out in July 2016, noted no immediate impact following the UK’s decision to leave the EU. However, depending on amendments to the passporting rules, the report suggested that some companies may restructure as they re-evaluate the best location for their business.
Andrew Ward, director of 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 reinsurers and 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 reinsurers and insurers.”
