‘The fact that a German business took the decision to actively manage legacy business is a sea change in philosophy’.
Pressure on capital ratios may result in many insurers removing legacy portfolios from their balance sheets – especially in Europe and increasingly in Asia which has large volumes of discontinued business.
Across Europe potential injections of capital brought about by the forthcoming Solvency II regulations, combined with poorly performing investments, mean businesses can no longer ignore the impact on balance sheets of legacy portfolios.
Germany in particular is looking for solutions.
In December there was approval of the country’s first solvent scheme of arrangement by a German reinsurer – Global Re. This was a genuine step forward for the development of European run-off.
The fact a German business decided to actively manage legacy business, and to commute through a solvent scheme a significant chunk of their liabilities, is a sea change in the philosophy of dealing with legacy business. There is no doubt that seeing one business take this step successfully will encourage others to look at this type of solution.
In Asia large volumes of discontinued business are managed reactively, despite markets like Hong Kong having the legislation to put proactive solutions in place. While the concept of making money from this business is largely alien in the big Asian markets, it is likely that the sheer potential combined with the onset of the credit crisis will hasten market development.
Juliette Stevens is a partner in the corporate insurance group at Clyde & Co.