Anyone who took out life insurance 20 or 30 years ago had no reason to doubt that the contract would remain with the very company with which it was contracted until the end of the term. But new supervisory rules and the low-interest phase have changed a lot. For some corporations, “run-off” became fashionable, ie the sale of contract portfolios to special processing companies. Five years ago, Generali sold Generali life insurance to the run-off company Viridium, which is majority owned by the British financial investor Cinven. More than four million customers are affected. At first the outcry was great. But in the meantime such deals are almost routine.
Arag, Zurich, Axa and others have sold holdings, albeit not by scale. Now that central banks are raising interest rates, removing a key reason for insurers to divest inventories, the question is: is the run-off coming to an end?
In February, Oliver Bäte, CEO of the Allianz Group, provided an – at least indirect – answer. When it comes to reducing balance sheet risks and making better use of capital, the group examines all options. “There are no sacred cows,” emphasized Bäte with a view to the German market. In the USA and in countries such as South Korea, Japan, Taiwan, Belgium and Great Britain, the group has already sold old contracts to liquidators or reduced its risk and capital expenditure through far-reaching reinsurance deals with investors. There are also reports of run-off plans in Italy.
Even if Allianz emphasizes that there are currently no corresponding plans for Germany, the deliberately vague statements made by Allianz boss Bäte are not well received by consumer advocates. Should Allianz actually decide to do so, it would not only be a severe blow for loyal customers, according to the Association of Insured Persons (BdV). “For decades, a customer has been paying into a life insurance policy that was sold to him as a secure old-age provision. He is increasingly getting the impression that the company’s share values are benefiting more than his contract,” said BdV board member Stephen Rehmke. “And in the end he ends up with a processing company.” Such a step would also send a bad signal to the insurance industry in the discussion about reforming subsidized old-age provision, in which it wants to continue to play a role.
Tilo Dresig, head of the run-off specialist Viridium, cannot understand the criticism. Customers benefited from the new IT systems used to manage their contracts and from lower costs. The sales costs were completely eliminated because the specialists are not looking for new business. However, Dresig admitted that some customers faced problems such as non-payment of services when transferring the contracts to the new IT. These are isolated cases.
One thing is certain: The run-off market is on the move, further deals are in the offing. While the number of life insurers in Germany fell from 120 in 1999 to 80 in 2021, according to the rating agency Assekurata, there are now twelve companies in external run-off or whose liquidation is organized internally by the groups.
Assekurata boss Reiner Will, one of the best experts on the market, believes that there is little potential for the run-off market once the larger providers have sold their inventory. “Company size is not necessarily an indicator,” he said at a SZ conference. The higher interest rates have ensured that life insurers are no longer under so much pressure.
However, many other advantages continue to make the sale of stocks attractive. The relief in the capital requirements demanded by the supervisory authorities is one side. The rising costs of modernizing IT also play a major role. “The interest rates don’t change the situation, because the fundamental problems are elsewhere,” said Martin Brown, a board member at Ergo, with a view to the outdated IT systems. The fact that more and more insurers, especially small and medium-sized companies, could opt for an external run-off also has to do with the fact that they are weak in new business. As a result, managing inventory that is shrinking overall is becoming more and more expensive. And they can’t afford new IT either. It’s better for them if the buyer of the contract stock takes over.