Life market also saw a decrease in liabilities, according to KPMG/Arc survey
2006 was a year of significant change in the UK non-life insurance run-off market, according to the findings of the KPMG/ARC Run-Off Survey – Non-Life Insurance 2007.
Proactive management of existing run-off portfolios, absence of new run-offs and the weak US Dollar combined to bring down total estimated liabilities in the UK non-life run-off market (including Lloyd’s syndicates) by over 14% to £32.7bn at the end of 2006, a reduction of £5.5bn on £38.2bn at the end of 2005.
As a percentage of total liabilities, run-off now represents 18% of the non-life market as a whole, slightly less than in 2005.
Steve Goodlud, a director in the KPMG Restructuring Insurance Solutions practice said: “Our survey demonstrates that the popularity of Part VII transfers, like solvent schemes, is continuing and these are widely used finality tools for stakeholders. There have been 20 Part VII transfers for non-life portfolios in 2006 alone, 13 of which were predominantly discontinued business. This is more than the total number of Part VII transfers involving non-life portfolios completed prior to 2006. The ability to include the reinsurance asset as part of the transfer has made them very attractive as a reorganisation tool.”
Meanwhile, the UK life run-off market in 2006 saw considerable reorganisation and consolidation, according to the survey.
Although total policyholder liabilities decreased by over £4bn overall to £132bn in 2006, this masks significant movements in the industry in the last 2 years, including the transfer of over £40bn of policyholder liabilities from closed life assurers to active companies and £100bn in internal reorganisations.
The survey also found that while the anticipated substantial growth in bulk annuity business has yet to occur, evidence of recent activity suggests this will feed through into the findings of next year’s survey. If maintained, the current environment of increased competition and lower pension deficits will further underpin this trend.
Darryl Ashbourne, director in the KPMG Restructuring Insurance Solutions practice said: “We have also observed significant activity in the bulk annuity market as a direct result of favourable market conditions. An increase in competition has put downwards pressure on prices while deficits of pension funds have reduced due to the rising equity markets and higher bond yields. Our survey reveals that the closed defined benefits pensions market is huge; the survey highlights over 3,300 pension schemes in run-off with a staggering £200bn aggregate liabilities.”