Global insurance run-off market at $730bn in 2017

The value of the global non-life discontinued insurance business exceeded $700 billion in 2017, according to research from PwC.

The size of North American non-life run-off liabilities was valued at $350 billion - almost equalling the rest of the world’s at $380 billion, according to PwC’s Global Insurance Run-off survey estimates. UK and Continental Europe remains roughly consistent with last year at $275 billion and Asia, South America and others total $105 billion.

The new global survey highlights that the recent momentum in proactive management and disposal of legacy business is set to continue, with the majority of all global respondents predicting they will undertake restructuring or exit activity in the next three years.

“The market is attracting new capital and we continue to see significant interest in run-off acquisition, particularly in Continental Europe and the US,” said Stephen O’Hearn, global insurance leader, PwC Switzerland.

Mirroring 2016, non-life run-off transaction activity in 2017 was ‘strong’, and PwC predicts a healthy pipeline of deals continuing in 2018 driven by a range of factors. These include further impetus from Solvency II in Europe, international re/insurers focussing increasingly on core underwriting and fulfilling a desire to gain either full legal or economic finality for their legacy liabilities through insurance business transfers or reinsurance arrangements. Capital efficiency, however, remains a central theme across all geographies.

The survey predicts that the lines of business most likely to be disposed of in the next two years are employers’ liability and workers’ compensation. Continental Europe is expected to be the most active territory in terms of number of deals, followed by the UK and the US.

Dan Schwarzmann, head of market initiatives and industries at PwC UK, said: “It is clear from our survey that the global run-off market remains extremely buoyant and there is growing recognition among re/insurers of the benefits of proactively managing legacy books. This is complemented by an increasingly sophisticated and well-capitalised group of run-off consolidators that have recently been supplemented by a number of new entrants, who are eager to provide exit solutions for owners of discontinued business.

“The results of our previous surveys have highlighted Continental Europe becoming an increasingly active run-off market and 2017 has seen a step change in this region which looks set to continue,” Schwarzmann added.

The increased focus on run-off is driven by a variety of factors and key objectives include releasing capital, managing costs and exiting legacy lines in order to focus on core underwriting goals. However, challenges remain and survey respondents identify adverse loss development, the regulatory environment and access to exit mechanisms as barriers to achieving their goals.

Commenting, Andrew Ward, director in PwC’s insurance liability restructuring team, said: “The run-off and legacy management markets are at their most active for many years and the level of restructuring activity looks set to be significant in the near term. In 2018 it will be interesting to see if developing US initiatives around Insurance Business Transfers and Brexit restructuring in Europe also provide additional momentum to the run-off community.

“There are many external factors influencing the way insurance is written, including new technology, AI and the growth of cyber risk. These developing underlying risks will inevitably drive change in the future run-off market, but we’re confident the legacy sector will adapt, continue to innovate and deliver value for all stakeholders.”

While traditional markets in Europe and the US dominate the run-off landscape, the Asian and African insurance markets are set to grow over the next decade which will lead to an increase in the value of their run-off reserves.

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