The trend of strong non-life run-off transaction activity continued in 2017 with the global insurance run-off market exceeding U.S. $700 billion and PwC predicts disposal of legacy business will continue in coming years.
The majority of all global respondents in the PwC survey say they will undertake restructuring or exit activity in the next three years, Continental Europe is expected to see the highest numbers of deals, followed by the UK and the U.S.
Commenting on key drivers of the non-life run-off trend, PwC said; “these include further impetus from Solvency II in Europe, international re/insurers focussing increasingly on core underwriting and fulfilling a desire to gain either full legal or economic finality for their legacy liabilities through insurance business transfers or reinsurance arrangements.
“Capital efficiency, however, remains a central theme across all geographies.”
Employers’ liability and workers’ compensation are lines of business that are highest on firms’ run-off agenda.
Dan Schwarzmann, head of Market Initiatives and Industries at PwC UK, said; “It is clear from our survey that the global run-off market remains extremely buoyant and there is growing recognition among re/insurers of the benefits of proactively managing legacy books.
“This is complemented by an increasingly sophisticated and well-capitalised group of run-off consolidators that have recently been supplemented by a number of new entrants, who are eager to provide exit solutions for owners of discontinued business.
“The results of our previous surveys have highlighted Continental Europe becoming an increasingly active run-off market and 2017 has seen a step change in this region which looks set to continue.”
At $350 billion, U.S. non-life run-off liabilities are nearly half of the global total, however, the UK run-off market is also one of the largest, UK survey respondents cited concerns over Brexit and political uncertainty as main drivers for run-off.
PwC said that although it’s still early to predict how Brexit will impact European run-off, the uncertainty surrounding European politics could act as a catalyst for restructuring activity involving run-off portfolios, as re/insurers re-evaluate the lines of business they want to prioritise.
Solvency II has been a further prompt for run-off transactional activity in the UK and Continental Europe.
UK respondents also indicated greater challenges from the regulatory environment and uncertainty around the Ogden discount rate, whereas those in the U.S. were more concerned with adverse loss development in achieving run-off objectives.
Schwarzmann concluded; “Our UK respondents have cited political uncertainties, including Brexit, as likely major influences on run-off in the next two years.
“Our experience is that the uncertainty surrounding Brexit has focussed the attention of (re)insurers and, as a result, planning, and in some cases, related restructuring, is well underway. However any significant Brexit impact on the run-off sector is yet to materialise.”