Only legislation is holding back growth of run-off market globally

The run-off market globally continues to surge with the idea of divesting legacy portfolios becoming increasingly normal – but a lack of appropriate legislation is holding this market back in some countries.

That was the main finding of a report into the sector by Global Insurance Law Connect (GILC), which has published a report looking into the drivers of legacy business in both mature and emerging insurance markets.

Member firms in 20 countries around the world have classified their local run-off market, in terms of both its maturity and direction of travel and looked at some of the dynamics behind these developments.

Jim Sherwood, chairman of Global Insurance Law Connect, said: “This is a huge market. PwC’s 2019 Global Insurance Market Run-Off Survey estimates non-life run-off reserves at circa $790 billion around the world, and legacy management becoming part of the “new normal”. As always it is fascinating to get insights from such a wide variety of markets into the trends in the run-off sector.

“Probably the best summary of our findings is “growth held back by legislation”. One universal truth is that in every market insurers are looking for opportunities to divest themselves of unwanted legacy portfolios. While some of the exact drivers may differ, we see a common pattern: in markets where regulation permits portfolio transfers, creative solutions flourish, with multiple parties cooperating in flexible ways; and, very often, delivering a more positive outcome for all parties.

“And yet in many markets, run-off is an untested concept, and in more than one territory, our legal specialists told us that they believed the regulator would be willing to accept run-off transactions, but that insurers are unwilling to put themselves forward as the first ‘test case’. As a result, there are a number of territories around the globe where transactions do not occur, in spite of the presence and interest of experts in the sector.

“In the more mature markets where activity is thriving, the reasons for this are multiple and varied. COVID-19 has taken a toll of many international insurers’ reserves, changed the profitability of some significant lines of business; and forced everyone in the industry to examine contract wordings, both historic and current. Brexit and the requirements of Solvency II and IFRS 17 also continue to act as drivers, while in the US, the increasing use of IBTs (Insurance Business Transfers) in different states is also driving ‘whole entity’ deal numbers.”

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