“Reports of my death are greatly exaggerated” (Mark Twain misquote)
The European life and pensions market continues to receive a lot of interest from the closed-book consolidators, long-term investors and family offices looking for long-term secure cashflows.
On the face of it, there is a lot of potential for old life and pensions books to be sold or transferred – tight capital, legacy products which are hard to maintain, sub-scale insurers struggling to become more efficient, and increasing regulation to digest.
But as we covered in a previous blog post, the transfer of an insurance portfolio is not as simple as it seems.
Disclaimer – this a personal opinion having been involved in this market for a many years. Very happy to be challenged and have a debate on this.
We believe that the market will split broadly along three lines over the next 5-7 years:
- The stronger insurers, or the category killers, that have a viable franchise will tend to retain their existing in-force portfolio. They will use it as an important asset to help generate new business and fund growth. We estimate this to be around 30-40% of the market (by technical provisions)
- Many of the in-force portfolios that are both non-core and separable will be up for sale or consolidated (see our previous post for more details and a checklist of criteria). We estimate that up to 10-20% of the market (by technical provisions) has the potential to be in this category. Although only a small portion of the total market, this still amounts to up to Euro 1TN of liabilities which is likely to be well beyond the ability of the current consolidation market to digest
- The remainder will be largely marginal or unviable for new business, but being unable to sell the business, they will be in-force managed within the current insurer as an orderly managed run-down. We expect this to be 40-60%, and the lions’ share, of the market
How this might play out
- The stronger insurers and category killers will be grappling with complexity for some time as they need to run the new business, manage the legacy and improve efficiency in parallel – this is a big challenge but is necessary for success with this business model
- The consolidators are going to be busy even if the volume of transfers is only a small share of the total European life insurance market technical provisions
- Supporting the orderly run down of insurers with a less viable future will be an opportunity for suppliers and Insurtechs that can help make the most of the in-force for the benefit of both shareholders and customers
Get in contact with Matt.