Unlocking value in run-off: Survey of Discontinued Insurance Business in Europe – Seventh edition

The seventh edition of PwC’s Survey, produced in conjunction with Insurance and Reinsurance Legacy Association (“IRLA”) analyses questionnaire results from over 150 parties across Continental Europe and the UK.

The size of the non-life European run-off market is now estimated to be around €235bn – an increase of around €11bn from the previous Survey. This has been in part driven by business being classified as run-off sooner than evidenced in previous Surveys. The figure below shows that over 50% of respondents now classify business from 2005 onwards as being in run-off, with 22% considering business since 2010 to form part of their discontinued book.

The fact that the market considers business to be in run-off significantly earlier than in previous years in part demonstrates the ever increasing focus on the value trapped in discontinued business.

Source: Dan Schwarzmann, Solutions for Discontinued Insurance Leader
We asked respondents: What is the most recent underwriting year that your organisation classifies as run-off business?

In a sector where innovation has always existed we are seeing a growing interest in new commercial solutions to extract value.

Source: Jonathan Howe, UK Insurance Leader

While asbestos remains the most challenging exposure respondents in Continental Europe also cited pharmaceutical claims as a major issue. Medical malpractice, European motor liabilities and mis-selling exposures were also highlighted as providing a challenge.

Other key findings show that:

  • Finality was replaced by orderly run-off as the most identified key objective of strategic run-off plans.
  • Long-tail claims continue to provide the greatest challenge in attainting finality in the UK, whereas in Continental Europe, reputational risk was the biggest influencer.
  • Respondents cited a perceived lack of exit mechanisms and preparation for Solvency II as the greatest challenges facing Continental European (re)insurers, with some referencing the lack of a consistent framework for insurance business transfers across Europe as a challenge.
  • Sale and reinsurance/loss portfolio transfer remained the most considered exit options across all Survey respondents, despite a fall in the proportion of Continental European respondents willing to consider a disposal.
  • Regulation, including Solvency II, is seen as a key driver for restructuring activity over the next five years with 72% of respondents selecting this compared with 43% in the previous Survey.
  • 51% of respondents confirmed that their Financial Supervisor had required them to comply with Solvency II interim measures, but a further 26% were uncertain whether they would be required to do so in the context of stand alone run-off business.

Helping to unlock value in run-off

The Solutions for Discontinued Insurance Business team at PwC has access to more than 200 specialists focusing on providing restructuring and operational consulting services to companies in the insurance and reinsurance industry with run-off business. The team is able to offer advice on a range of issues including bringing finality to run-off and considering options such as sale or transfer of liabilities.

Previous editions available here:

Sixth edition - A Survey of Discontinued Insurance in Europe