Market beckons, but hesitance in some jurisdictions persists

Despite overwhelming worldwide interest in the run-off market there are still jurisdictions around the globe where transactions are approached with extreme caution or do not yet occur. In emerging economies, no-one wants to be the pilot episode and in developed economies factors such as Brexit and the COVID-19 pandemic have compelled a review of contract and policy wordings.

This was one of the main points from an interview with Chris Fletcher, partner at UK law firm BLM, and Dominik Skrobala, partner at Swiss law firm gbf, titled “ Run-off market set to thrive in 2021”. The interview took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

Fletcher and Skrobala were sharing insights from Global Insurance Law Connect’s (GILC) first run-off report, looking into the drivers of legacy business in both mature and emerging insurance markets.

Fletcher said that legacy business is an enormous market and that the time had come to put together a report that would define and line up experience across the globe.

“We have a market which is dynamic and burgeoning,” he said. “We thought our clients needed a specific sector focus.”

Skrobala added that it was interesting to find that the drivers of legacy business in both mature and emerging insurance markets were earmarked by hardening rates as one of the main reasons for rapid portfolio transfer.

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“You would think that developed economies would understand the need for easy market entrance and exit, but it was astonishing to find that this is not the case,” he said.

Regional differences
Fletcher said it was remarkable to note that some territories revealed a contradiction.

“Jurisdictions you thought would show more development did not,” he said. “This is interesting when you look at the difference between the development of the market in different jurisdictions around the world,” he added.

“In some markets one needs legal certainty and depending on the global economy going forward, regulation might be synchronised in future,” said Skrobala.

“It could be that lawmakers see a need for international cooperation, which could be a huge relief for professional policyholders,” he said.

There are still a number of regions around the globe where run-off transactions do not occur, in spite of growing interest in the run-off sector. And while there are regulators that would be willing to accept run-off transactions in many of these territories, there is still a cautionary step taken by many jurisdictions.

Skrobala said that regulatory pressure was playing a key role in this.

“Before you start thinking about a portfolio transfer or a run-off, you need to get some control of your portfolio because this is the first question a regulator will ask you,” he explained.

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Fletcher said there is opportunity in this sector for innovative solutions.

“It is a burgeoning market, and it is going to have an impact and provide solutions more widely around the globe as we go forward,” he concluded.

To view the full Re/insurance Lounge session click here.