PwC survey finds 2008 will be a "year of change" for the run-off industry

The year 2008 is already shaping up to be a year of change in the European discontinued insurance markets, according to a new survey issued today by PricewaterhouseCoopers.

Nearly two thirds of the businesses (63%) surveyed for the report stated that dealing with run-off business is now a priority for senior management.

One of the key factors driving this increased attention to run-off is the introduction of new regulation across Europe. The survey revealed that 60% of respondents believed that Solvency II will drive an increased focus on run-off business and the exploration of various exit options across Europe.

Unsurprisingly, therefore, 80% of respondents are expecting the implementation of the new Reinsurance Directive to result in European cross-border transfers over the next five years.

The PricewaterhouseCoopers second annual survey, ‘Unlocking value in run-off’, produced in conjunction with the Association of Run-Off Companies, analyses questionnaire results from a cross-section of professionals from discontinued and live insurers in both Continental Europe and the UK. It examines the attitudes towards managing run-off business across Europe and presents a unique insight into the run-off market.

Dan Schwarzmann, partner in the solutions for discontinued insurance business team at PricewaterhouseCoopers LLP, said: “It is clear from our research that focus on the run-off market in Continental Europe is gathering momentum. Although it is too early to say whether 2008 will be a year of step change, this area of business is fast moving up the corporate agenda as factors such as Solvency II put pressure on insurers to deal with their run-off liabilities. Furthermore, with an increased focus on efficiencies and the extraction of capital, we can expect to see further transactions in the next 12 months that will release value for insurers, policyholders and cedants.”

Other key findings from the PricewaterhouseCoopers survey include:

o The overall size of the discontinued insurance market has fallen slightly from Euros 204 billion to Euros 202 billion in the last 12 months. The increase across Continental European run-off has been countered by a decrease in the UK market;

o According to respondents, the key challenges facing Continental European insurers and reinsurers in relation to their run-off business include tied-up capital (63%), volatility (59%) and operational costs (56%);

o More than 70% of respondents estimated that it will take over 10 years to run off their business in the natural course. PricewaterhouseCoopers believes that implementing a strategic plan, such as a solvent scheme of arrangement, could reduce the run-off period to three years;

o The availability of certain tools for dealing with run-off, such as solvent schemes of arrangement, is not widely appreciated. Only 20% of those surveyed were aware that 31 solvent schemes of arrangement, all but one promoted by PricewaterhouseCoopers have been implemented to date for Continental European insurers.