Confluence of factors suggest more portfolios will go into run-off
“The stars in the run-off market are aligning,” said Dan Schwarzmann, partner at PwC, who predicts there will be an increase in run-off activity. “There will certainly be an increase in runoff, but I was saying that before the recession, because of issues like Solvency II, which will mean companies are more focussed as to where their capital is employed,” he said. Investment losses, lack of capital, heavy catastrophe losses, and the end phase of a long soft market, are among factors which may lead to an increase in portfolios going into run-off.
For Schwarzmann, the run-off sector is an exciting sector receptive to innovation. “Many of the new ideas that I have seen in this sector are now being applied in other areas of business, such as in the banking and pensions worlds,” he said. “The Reinsurance Directive allows companies to be much more creative. Some may want to create a centre of excellence to deal with all their run-off. They can do that now, but could not do so before.” One use of the Reinsurance Directive would be to transfer a continental European book of business into the UK, in which jurisdiction Schemes of Arrangement are provided for under section 425 of the Companies Act 1985, allowing for the wholesale commutation of that book.
Schwarzmann joined the runoff sector 15 years ago. “I went to an internal talk on the insurance market and at the end of the 45 minute speech the speaker asked for questions,” he recalls.
“No one asked a thing and, only because I felt sorry for the speaker, I put up my hand and asked a question – which turned out to be quite a good one with hindsight! I got back to the office and about an hour later the staff manager called and told me I was being seconded to the insurance team for six months. I enquired why they had chosen me and she explained that by asking a question it was evident that I was passionate about the subject! The last 15 years have certainly been the longest six months secondment I have had!”