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The Actuary The magazine of the Institute & Faculty of Actuaries

Solvency II focusing insurers' minds on run-off restructuring

A third of the respondents also expect a significant level of restructuring activity in the next three years.

PwC's fifth annual survey, ‘Unlocking value in run-off' ranked Solvency II as the greatest challenge facing continental European (re)insurers with run-off business.

Access to exit mechanisms and capital constraints were ranked as the next greatest concerns.

The survey, produced in conjunction with the Association of Run-Off Companies, said medical malpractice, credit and surety as well as employers' liability are the lines of business their companies are most likely to exit.

Some 43% said Solvency II may result in their organisation acquiring certain lines of business, with long-tail liability lines seen as the most likely target area.

Dan Schwarzmann, partner in the solutions for discontinued insurance business team at PwC, said: "It is clear that the impending arrival of Solvency II is forcing many (re)insurers to reassess their capital position and product mix.

"We anticipate that there will be a significant volume of transactional activity linked to Solvency II with new niche players emerging, but this will probably not start materialising for another 12 months or so.

"Management are postponing decisions on what will be tomorrow's run-off until they have fully evaluated the capital and diversification implications."

More than 90% have a strategic plan in place for dealing with their run-off business and more than 60% cite releasing capital as the key objective. Two thirds of respondents that had contemplated exit had considered using a solvent scheme of arrangement, 59% a reinsurance or loss portfolio transfer, 55% a sale and 41% an insurance business transfer.

Several respondents also commented that they expect to see an opt-out solvent scheme of arrangement in the market in the next 12 months.