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Activity in the European insurance run-off market to increase, says S&P

21st May 2019 - Author: Luke Gallin

International financial services rating agency, S&P Global Ratings, expects stable to gradually increasing activity in Europe’s property and casualty (P&C) run-off market.

S&P Global RatingsMore so for longer tail lines, S&P expects annual growth in liabilities in run-off of between 1% and 2% until the year 2020.

Over the next few years, the ratings agency expects regulatory changes and requirements, capital optimisation, and the need to improve risk-return profiles amid low interest rates, to be the driver of run-off deals.

“The main risks for insurers related to run-offs depend on the type of transaction. We believe an external run-off could lead to reputational risks, while an internal run-off could keep volatility on the balance sheet and capital locked up for the long term,” said S&P Global Ratings credit analyst, Silke Longoni.

In the life run-off market, S&P expects to see continued activity, especially in the UK and Germany, albeit to a lesser extent that witnessed over the last three years.

On the other side of the spectrum, the firm sees low potential in both Italy and France as a result of relatively limited solvency benefits that are driven by low guarantees and the small share of long-tail life solutions.

The ratings agency also notes that rating actions as a result of run-off activity depend on both the specifics and magnitude of the business, adding that it does anticipate less transformative run-off deals over the next two years.

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