UK liability reserves boost European run-off market

Run-off reserves in the non-life European legacy insurance market is estimated to be worth €247bn (£181bn) – an increase of €5bn compared to last year.

According to the PwC’s 9^th annual survey of discontinued insurance business in Europe, the increase had mainly been driven by the UK and Irish markets where the trend of strengthening long-tail employers’ liability reserves has continued.

Additionally, there is an increase in discontinued insurance business as insurers classify certain business lines as being in run-off much earlier in their life cycle.

Run-off reserves is money that insurers set outside to meet the cost of claims from discontinued business lines.

The survey which is based on responses from a cross-section of European risk carriers and service providers found that run-off legacy and legacy management is ranked higher in the UK and Ireland than the rest of Continental Europe.

It found that 18% and 43% of Continental European respondents ranked run-off and legacy management as a “high” or “medium” priority respectively on their board’s agenda.

This compared to 38%, high priority, and 33%, medium priority, from the UK and Irish respondents.

PwC said: “Furthermore, as the run-off market is no longer witnessing so many distressed situations, almost half (47%) of the respondents say that their overall business strategy would be the most likely factor to increase the likelihood that they would implement an exit or restructuring solution for a legacy portfolio.”

The implementation and preparation for Solvency II which comes into force on 1 January 2016, is also the top challenge facing Continental European (re)insurers with run-off business.

However, a lack of board level engagement is ranked as the second most pressing challenge for legacy business managers, the PwC said.

PwC head of solutions for discontinued business Dan Schwarzmann said: “The European insurance run-off sector has seen plenty of activity and we are certain run-off liabilities will continue to grow.

“Solvency II implementation is promoting a sharper focus on capital and providing an impetus for insurers to assess the future of their non-core portfolios.

“The current vibrant M&A scene in the live insurance market should also create future activity in the run-off sector as merged companies focus much more on what books to discontinue.”