KPMG’s annual ‘Run-off survey’ of UK non-life insurance, has shown that liabilities have reduced again in 2010 but at a slower pace than in the past.
Mike Walker, Head of KPMG’s Restructuring Insurance Solutions Practice at KPMG in the UK, commented: "A large proportion of the remaining solvent run-off market outside of Lloyd’s now resides in the hands of entities whose business approach is not to accelerate claims; through choice or because those claims are insured through compulsory insurance. These businesses currently face potentially difficult challenges as they seek to generate profits and release surplus capital at a time of increasing costs, claims settlements and depressed investment performance."
“Significant time and valuable resources are being used to deal with increasing compliance burdens required as a result of the changing regulatory environment. Despite recent announcements regarding the proposed delay to the implementation of the Solvency II directive, there is little respite for insurers."
“Proposed new transitional exemptions for run-off companies, who have argued that the costs of Solvency II are disproportionate for their businesses, will clearly be welcomed. To benefit from these arrangements however, run-off business will need to close within a limited timeframe and we are likely to see run-off entities revisiting schemes of arrangements and other finality options.”
Key findings of the research include:
John Wardrop, Partner in KPMG’s Restructuring Insurance Solutions Practice, commented: “In the last 18 months we have seen, and have advised on, a number of large scale reorganisation and restructuring projects by many of the largest insurance groups as they seek to minimise future administration and compliance costs, and maximise capital efficiencies ahead of Solvency II. We anticipate such structuring projects for insurance groups may lead to some legacy business ending up in the hands of run-off acquirers.”
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.