Largest German run-off life deal paves way for more

The Generali deal which will see the Italian insurer sell its unit Generali Leben would be the largest run-off deal in Germany to date in what will be a growing theme in the German life insurance market, according to Fitch Ratings.

Generali has agreed to sell 89.9 percent of life insurer Generali Leben in Germany to Viridium Gruppe, which is owned by London-based private equity firm Cinven and German reinsurer Hannover Re.

The transaction values Generali Leben at up to €1 billion with the total estimated cash-in likely to be approximately €1.9 billion. Covering traditional-business reserves of about €37 billion, the transaction would be the largest run-off deal in Germany to date, and could pave the way for more large deals, Fitch said.

“We forecast that run-off specialists will manage more than half of closed life business in Germany by 2022, compared with about 25 percent currently, as insurers start to find the costs of managing shrinking portfolios an increasing burden. Run-off specialists such as Viridium can manage closed portfolios more efficiently by acquiring and integrating portfolios from several insurers to generate economies of scale,” Fitch said.

Many German life insurers have stopped offering traditional saving products with long-term investment guarantees and put their portfolios into run-off. Traditional business has become less profitable and more capital intensive due to low investment yields and higher capital requirements under Solvency II. About €130 billion of Germany's €1 trillion life sector is in run-off, and Fitch thinks this could grow to €180 billion by 2022.

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