Run-off specialist DARAG has predicted legacy transactions will reach ground-breaking heights in 2017 as current market trends and pressures drive the sector’s rapid growth.
DARAG Group Chief Executive Officer (CEO), Arndt Gossmann, called 2016 an “unprecedented year for run-off, both in number of transactions and volume,” and said this year will bring a further boom with continental Europe leading the way.
Non-life run-off deals last year totalled about €4.4 billion, and Gossmann expects this figure to double up in 2017.
Gossmann said this €8 billion+ prediction is due in part to Europe’s biggest insurers all simultaneously entering the run-off market.
He said that while companies had been gearing up run-offs for some time, they had been holding back until Solvency II regulations were complete, but would now be implementing their new legacy strategies.
With social, technological, and economic trends placing the re/insurance industry at the cusp of major change, run-offs are seen to fit hand in hand with these developments, and all this, according to Gossmann, “creates an explosive market of opportunities.”
This market of opportunities will work to make the sector highly competitive, and should drive prices down, the speciality insurer said its strategy for remaining competitive in the long-term will be to focus on quality rather than price, to position itself as a reliable and steady run-off partner.
Insurtech is driving rapid innovation in the re/insurance industry, as industry players adapt to keep up with how technology has altered consumers’ expectations, and Gossmann explained that within the innovation race, run-offs can play an important role as enablers; “that unlock capital, time and internal resources by providing a fast and efficient solution for discontinued business.
“I believe that more and more enterprises will be harnessing legacy and capital management solutions to spur innovation within their company.”
As millennials enter the market, with expectations for personalised, topical, and efficient products to match lifestyle needs, run-offs will help companies to match these expectations; “Efficient legacy management strategies enhance focus and untie resources and capital.
“This can have a direct positive impact on the company’s operations, capital allocation and reputation.”
With the average transaction size jumping from €20 million in 2014, to €200 million in 2016, alternative capital is expected to remain an important part of run-off deals, and grow as part of the booming sector: “in 2016 we saw structured solutions involving multiple players.”
“Our approach has been to employ and channel alternative capital within our own structures, such as DARAG’s Protected Cell Company (PCC) /R-pad,” Gossmann said.
DARAG said run-off opportunities and transactions from Continental Europe have significantly increased – and these players will be the ones to grab hold of this new trend and provide a lead-in.
Despite the market boom, the specialty run-off player DARAG, said it would still take some time before legacy is widely acknowledged within the industry as an efficient capital management strategy.
But with disruptors surrounding the insurance and reinsurance industry; “One thing is for sure: change is an absolute certainty.
“For insurers, structured solutions for inactive business are key to successfully responding to uncertainties resulting from such a dynamic environment,” said Gossmann.
