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Insurance and legal professionals expect to see an increasing number of run-off deals in 2021

8 March 2021—Global Insurance Law Connect (GILC) member firm Sparke Helmore has today launched its first run-off report, looking at the drivers of legacy business in both mature and emerging insurance markets.  Specialist insurance law firms in 20 countries around the world have classified their local run-off market, in terms of both its maturity and direction of travel and looked at some of the dynamics behind these developments.

Gillian Davidson, Sparke Helmore Commercial Insurance Partner and GILC Board representative for Asia Pacific, commented, “This is a huge market and one that varies immensely from country to country. It is fascinating to get insights from such a wide variety of markets into the trends in the run-off sector.

“The best way to sum up the findings is “growth held back by legislation”.  One universal truth is that in every market, insurers are looking for opportunities to divest themselves of unwanted legacy portfolios.  While some of the exact drivers may differ, we see a common pattern: in markets where regulation permits portfolio transfers, creative solutions flourish with multiple parties cooperating in flexible ways and, very often, delivering a more positive outcome for those parties.

“In other markets however, run-off is an untested concept. In more than one territory our member firm specialists told us that they believed a particular regulator would be willing to accept run-off transactions but, insurers are unwilling to put themselves forward as the first ‘test case’.  As a result, there are a number of these territories where transactions do not occur, in spite of the presence and interest of experts in the sector.

“In the more mature markets where activity is thriving, the reasons for this are many and varied.  COVID-19 has taken a toll of many international insurers’ reserves, changed the profitability of some significant lines of business, and forced everyone in the industry to examine contract wordings, both historic and current.  Brexit and the requirements of Solvency II and IFRS 17 also continue to act as drivers, while in the US, the increasing use of IBTs (Insurance Business Transfers) in different states is also driving ‘whole entity’ deal numbers.

In Australia, the run-off market is starting to gain more traction and in 2021, it looks likely to continue to grow and gather momentum. Large global players are looking to run-off specialists to acquire legacy portfolios, which enables them to have a clean and decisive exit from lines of business that are taking up capital and capacity.”

Click here to access the full report.

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