Solvency II to shake up insurance market and cause exits–PwC

According to the survey most activity will take place in Germany, the UK and Switzerland with medical malpractice, credit and surety and employers’ liability being the lines of business that companies are most likely to exit.

Just over 40% of respondents said Solvency II might 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.”

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Over 60% of the risk transfer industry believe Solvency II will increase the focus of companies on underperforming lines of business. 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.

Over 90% of those surveyed have a strategic plan in place for dealing with their run-off business and more than 60% cite releasing capital as the key objective.

“European run-off business is now being managed through increasingly sophisticated strategic plans, with the spotlight on releasing capital and consolidating organisational structures. Part VII and insurance business transfer activity has been particularly strong this year as companies seek to create more efficient capital, regulatory and operational structures,” said Mr Schwarzmann.

According to the survey the size of the non-life European run-off market is now in the region of €218bn. In March 2010 PwC estimated it to be approximately €205bn.