Disposal of legacy business can increase efficiency

Run-off specialist DARAG has seen a significant increase in opportunities in 2017, as was foreseen in the last couple of years, Eleni Iacovides, group chief client officer, told Baden-Baden Today.

DARAG takes discontinued business from insurance and reinsurance companies into its own balance sheet—a strategy that is making increasing sense to companies in the current regulatory and business environment.

“Operational and capital optimisation are two key drivers for Europe as we see it,” said Iacovides. “That is across the board. When we see large groups proceeding with the disposal of non-core business and portfolios they have been managing for years, that’s an indication of the fact it is not just about needing to do something; it is about strategically managing your business.”

Solvency II made capital requirements more stringent, and regulatory reporting and duties heavier. Both factors have contributed towards the disposal of portfolios that are no longer core to insurers’ operations. The continuing low investment returns are also driving insurers to manage capital as efficiently as possible.

“The transitional measures that offered a buffer are coming to an end, yet another driver for companies to review their business requirements, to release capital where possible and to deploy it to core business, growth, improved results and returns for shareholders,” said Iacovides.

All is “conspiring towards greater efficiency”—and as larger players have moved to dispose of legacy portfolios, this strategy is seen as a decision that makes sound business sense rather than a sign of strain or failure.

“This may be a factor to the increased activity among smaller players to move that way. If the big guys are doing it from a capital and operational optimisation point of view, the smaller players may also find it more comfortable to recommend such steps to their boards,” she concluded.

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