Deutsche Rück transfers run-off business to UK

Düsseldorf-based German reinsurer, Deutsche Rückversicherung AG (Deutsche Rück), has announced the completion of its strategic plan, developed in conjunction with its run-off consultants, Chiltington International, to exit from third party run-off reinsurance business.

In what is understood to be the first German transaction of its kind, Deutsche Rück has transferred all of its third party run-off business to its UK subsidiary, Deutsche Rück UK Reinsurance Company Ltd, via a business transfer using the new German Insurance Supervisory Act VAG which came into force on 2 June 2007.

The new Act is part of Germany’s implementation of the EU Reinsurance Directive and its provisions enable reinsurance portfolio transfers similar to those which are permitted under Part VII of the UK’s Financial Services and Markets Act 2000.

Under the strategic initiative, Chiltington will manage the Deutsche Rück’s run off business that is being centralised in Deutsche Rück UK, with the overall object of finalising the run off.

Jürgen Rehmann, Deutsche Rück’s chief executive, said: “The key benefit of this initiative is it enables us to fix a maximum cost for the run off liabilities and to concentrate those liabilities in the UK, so insulating Deutsche Rück’s balance sheet from any potential future adverse loss deterioration from these portfolios. This is a further positive contribution to the strong financial position of our company which is mirrored by a good Standard & Poor’s rating of A+.”

Chiltington’s group head of consulting, Ian Marshall commented: “In this particular situation, when compared to the UK’s Part VII transfer process, the German procedure had been simpler and therefore less costly. However, it is equally likely there will be situations where a Part VII transfer could have advantages over the German process. In this respect, the German transfer procedure should be seen as a valuable addition to the overall tool kit for Germany-UK transfers, not a replacement of existing mechanisms.”