As insurers get up to cruising speed on Solvency II, transactions will follow

The arrival of Solvency II was expected to bring a greater focus on legacy business – in France and elsewhere in Europe. An increase in the number of transactions in this field was considered likely as many companies reconsidered their operational models in light of the new regulations.

So far this wave of run-off activity has failed to materialise. Companies have had other priorities, grappling with the practicalities of operating in the new Solvency II environment as well as getting to grips with other legislative changes including the Insurance Distribution Directive, the impending General Data Protection Regulations and new anti-money laundering requirements, which have required significant internal resources.

However, the signs are that this is set to change in 2018. Many re/insurers in continental Europe have a sizeable number of contracts in run-off. Overall, the size of the European run-off market is estimated to be around EUROS 247 billion, of which France and the Benelux countries account for EUROS 41 billion, according to PwC.

Management of this business is quite demanding in terms of the specific expertise it requires, as well as the demands it places on capital, immobilising funds and resources that could be used elsewhere. As a result, as re/insurers and the regulators reach cruising speed on Solvency II, the benefits in terms of capital requirements of optimising the management of legacy business, or of organising the sale of certain books of business in run-off, will once again be thrown into sharper focus. We expect a wave of run-off activity will follow.