The problem insurers have with dating
There is much hype and interest in the sale of closed life insurance books. And there is an active dating scene between investors with funds to invest, and insurers with closed books of business they might want to offload.
But with the exception of the US and UK, most markets have seen very few closed-book deals. There is a lot of effort but little action in continental Europe. Having been on both sides of the fence as an advisor and as an exec responsible for in-force business, the problem is clear – Too many of the insurers should not be on the closed-book dating scene at all. With a little bit of introspection and analysis, they would recognise that the sale of their closed-book is not feasible any time soon.
The inforcehub showstopper list
A life insurer needs many stars to align for the sale of a closed book to be feasible. We have pulled together a checklist of the showstoppers, all of which need to be passed for a deal to work in most practical situations:
- Are these in-force customers non-core? Am I really happy saying goodbye to them?
- Is the book legally separable? If the portfolio is in a separate legal entity then this is usually a yes. If a portfolio is within an entity then continental European regs make this harder than the UK or US regs to carve it out
- Is the IT separable and self-contained? If any policies being retained use the same system as the portfolio being sold then there are often very large dissynergies in IT which will kill the deal economics
- Can I get my regulator, customers and other key stakeholders comfortable with the new owner? Do they have a licence? Do they have a track record? Will it be better for our customers?
- Is the new owner a good fit for us? Do they compete with me? Do they bring additional value to the table? Is there industrial logic in the deal?
- Do the economics work? This is about price and capital, but also financial optics. Note that in almost all deals, there will be a financial hit from selling the portfolio. A one-off P&L hit is not necessarily a showstopper for shareholders, but a capital impact may be. Simple pro-forma financial analysis can help answer this question in just a few days.
- … plus usually 1 or 2 insurer specific showstoppers, typically about culture (e.g paternalistic and therefore very unlikely ever to sell policies) or strategic imperative to do a deal
Insurers, do your homework
A small amount of effort and introspection with the showstopper list would highlight to many insurers which portfolios pass the showstopper checklist and could be sold. Most will find however that one of more showstoppers will fail. In these situations our advice is that an insurer should resist the closed-book dating scene and instead recognise that they can in-force manage the block effectively themselves. Experience shows that this could improve RoE by at least a couple of percentage points over time.
Thinking you might sell a closed-book? Reach for the showstopper list first …
Get in contact with Matt.