Non-life European legacy insurance market is estimated to be worth €247bn (£181bn)

Money pounds cash Pensions Insight

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 9th 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.”