Welcome to the eleventh edition of our Survey of discontinued non-life insurance business which has been produced in conjunction with IRLA and AIRROC. Many of you will be familiar with our previous editions focussing on European run-off. This year, we are pleased to have expanded our horizons to incorporate a wider look at the global run-off industry.
It is clear that the run-off market is buoyant with Survey respondents indicating a range of factors set to influence the sector. Run-off transactions in 2017 followed the upward trend of 2016 deal activity, and early signs indicate that the strong market is poised to continue through 2018. This reflects the increasing recognition by owners of discontinued insurance business of the benefits associated with pro-active management of legacy liabilities and back books.
We would like to thank everyone who responded to our online survey.
Learn more about our key findings below.
We estimate that the size of the global run-off market is US$730bn.
Unsurprisingly, North America dominates the global run-off market in terms of both new and latent claims run-off. We estimate that it currently has a value of US$350bn. This compares to our estimate of the current value of run-off in the UK and Continental Europe of approximately US$275bn, which appears to have remained broadly stable over the last 12-18 months. We also estimate the value of run-off in other significant territories, including Asia and South America, to be US$105bn.
The key strategic objectives for owners of (re)insurance run-off business remain broadly consistent with previous Surveys. Participants cited orderly run-off, releasing capital and early finality as the primary objectives of their strategic run-off plans.
Adverse loss development is cited as the primary challenge to the achievement of respondents’ strategic run-off objectives. Access to exit mechanisms and the regulatory environment have increased in prominence compared to board level engagement for legacy business and Solvency II compliance which were cited as key challenges in the previous Survey.
A significant majority of respondents to our Survey think it likely or highly likely that restructuring or exit activity will be undertaken in the next three years.
In particular, activity is forecast to be significant in Continental Europe where the market is showing increasing signs of pro-actively managing run-off portfolios.
Over half of respondents believe there will be more than 10 transactions in each of the territories in the next two years.
Respondents predict that the value of individual portfolios most commonly disposed of in the US will be greater than in the UK and Continental Europe. Nearly twice as many respondents anticipate portfolio disposals of liabilities greater than US$125m in the US, than in the UK and Continental Europe.
“The non-life run-off market is vibrant and the momentum of 2017 is set to continue as owners of discontinued business look at opportunities to divest of or manage legacy books more effectively."