Credit crunch forces insurers to sell run-off books in effort to raise capital

The credit crunch could spark a series of acquisitions within the run-off sector, according to PricewaterhouseCoopers (PWC).

Worsening credit conditions will see insurers selling their run-off books in a bid to free up capital and gain operational, regulatory and tax efficiencies, it predicted.

Further to this, around 90% of European insurers believe that the new Reinsurance Directive will result in increased transfer of run-off books over the next five years, according to PWC’s European run-off survey, reported last week.

“The credit crunch will be a catalyst for acquisitions of run-off books of business

Dan Schwarzmann, PWC

The survey valued the market at €204bn (£154bn) in 2008, down slightly from €202bn in 2007. An increase in the size of the continental European market was offset by a fall in the UK market.

Dan Schwarzmann, partner in solutions for discontinued insurance at PWC, said: “The credit crunch will benefit run-off business as insurers seek to relocate their capital. It will be a catalyst for acquisitions of run-off books of business, and we expect to see a lot of activity in this sector.”

The survey found that few respondents were aware of the availability of special solvent schemes for dealing with run-off. But Schwarzmann said the UK was the best equipped of all European nations to provide such schemes, and as a result of this and the effect of the Reinsurance Directive, expected the UK market to benefit.