European Run-off Market Grows Ahead of Solvency II

The European insurance run-off market is set to grow for the sixth year in a row, with transactional activity set to reach a peak in 2015 as the Solvency II capital adequacy regime impacts on the number of deals coming into the market, according to PwC’s annual survey.

PwC’s eighth survey on discontinued insurance business, launched at the Monte Carlo reinsurance rendez-vous, finds that the European run-off market is now worth €242bn, an increase of €7bn from 2013. Most of this increase comes from German and Swiss run-off books of business. PwC expects transactions to peak in the year as Solvency II drives a renewed focus on core business and organisations decide to exit non-core lines.

The report, based on responses from more than 200 organisations, reveals that two in three increasing their focus on dealing with underperforming lines of business due to Solvency II.

Of companies who have considered an exit for their run-off, nearly 60% have considered a sale. The UK and Germany are expected to be the most active territories for disposal transactions in the coming year. Over eight in 10 respondents expect five or more disposals to occur in the next two years. Most people expect that likely portfolio sizes to be disposed of will be less than €100m.

“There is likely to be a steady flow of companies attempting to dispose of, or exit from, legacy business that will not be capital effective in their post Solvency II balance sheets,” said Dan Schwarzmann, head of PwC’s solutions for discontinued insurance business. “Our survey also highlights that balancing reputation with the desire for exit remains a key concern amongst Continental European Insurers.

“Despite the positive outlook for deals activity in the market, the survey highlights that there remains some unease about how regulators across Europe will treat exit activity. The stakeholders in the run-off industry need to continue to work together to provide policyholders with optimum benefits.”

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