Finance Monthly Game Changers Awards 2017

FINANCE

MONTHLY

GAME

CHANGER AWARDS

2017

Howdoes it feel tobe recognizedas agamechanger

in your field?

The insurance sector has to have a conscious view on risks to be

successful. For decades the conservative approach was not limited

to underwriting. The entire approach to business was conservative – at

least compared to other industries. Now a paradigm shift has started. In

order to remain successful it will be necessary to change the business

models radically, while maintaining the risk awareness in executing the

business. This is an enormous tension to master. At the same time it is

one of the most exciting places to be. I am honored and grateful to be

recognised as a game changer. Given the challenges ahead for the

industry however, I believe that “Game Changer” has to be a basic skill

for the all the leaders in this industry.

Have run-off solutions changed the game for the

insurance industry?

I believe so, in the sense that run-off solutions provide real and scalable

benefits which are very topical and relevant to the new market

conditions. As a run-off specialist, DARAG’s value proposition is simple

and clear and it’s related to the assumption of legacy business, from

direct insurers and reinsurers. By doing so we relieve ceding insurers and

reinsurers from old risks and guarantee the professional settlement of

claims. It’s an efficient capital management tool. According to the latest

PwC research, Europe has €247bn of discontinued business. This means

that on the balance sheets of all 2,500 insurance companies across

Europe, there is close to €250bn of business which is not generating

premium anymore. Why should this capital remain blocked, when it

can be used more efficiently elsewhere? And why should (re) insurance

companies allocate time, money and resources in a non-core segment,

especially in today’s soft market conditions, when getting acceptable

returns, always considering the risk level, becomes all the more difficult?

How has DARAG pioneered run-off solutions?

DARAG was the first to pioneer run-off and capital management

solutions in Continental Europe. So far we have concluded 22 run-off

transactions in 13 countries. No other (re)insurance company can point

to a comparable track record. Yet this is not where we stop, quite the

contrary. Our Group is now domiciled in Germany, Italy and Malta with

operations across Europe. In 2015 we launched a second risk carrier

offering ProtectedCell solutions (the R-pad) enabling insurers to efficiently

structure large and complex portfolios and investors to participate

ARNDT GOSSMANN

CEO of DARAG

www.

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.com

directly in run-off opportunities without having operational concerns.

The run-off potential in the Continent is still untapped and undeniable.

So is the development of new, innovative capital management solutions

that will respond to today’s challenging environment and the industry’s

disparate needs. Our aspiration is to remain “game changers” in this

field.

Is run-off considered an appealing investment

opportunity? Why?

Run-off is considered a very attractive and sought after investment

opportunity as it offers uncorrelated returns with low volatility. This current

investment trend correlates positively with the run-off industry’s constant

need for capital. The average transaction size has jumped, from 20

million euro in 2014, to 200 million euro in 2016, while some single deals

amount up to 1 billion euro. So you have the size, the scale and the

potential. This is an investment boon.

Yet, although run-off is a very attractive asset per se, the surrounding

investment processes have been inflexible and complex at the same

time. So far, investors had to buy an entire portfolio or a company with

all the operational and regulatory requirements – for many too big of

a threshold. That is why DARAG, in 2015 established its Protected Cell

Company (PCC) in Malta. The cell structure allows for easy investment

access, efficient use of capital, ring-fencing among the cells and

the core, as well as flexibility, speedier set-up, cost efficiency and full

compliance with Solvency II. This has been a market gap so far. Since

last year we have launched a first cell which is already approved, and a

second one is underway.

What was 2016 like for run-off? Do you expect further

growth in 2017?

2016 has been the best for run-off insurers, so far. We had estimated

a total volume of 4bn euros in legacy books being transferred in the

European non-life sector alone. According to our estimations, from

the announced and published run-off deals, this transaction volume

reached close to 4.5bn euro without including the deals whose value

was not disclosed. Yet we believe this is just the start. For 2017 we expect

more overall growth, especially in run-off opportunities and transactions

coming from the Continent. Apart from Solvency II which is the main

driver of run-off, Brexit and the new Rhode Island Regulation 68 in the

USA will provide further stimuli for growth. I think we will see the potential

of the run-off / legacy market gradually unfold in the next 2 to 4 years.