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Lloyd’s insurers lead Europe-wide trend for legacy portfolio sell-off over next three years

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The majority of Lloyd’s businesses (77 per cent) are considering legacy portfolio disposals, with more than half of firms based in Western Europe (53 per cent) expecting to make at least one sale in the next three years, according to Willis Towers Watson’s annual insurance M&A survey. 

This represents a 42 per cent rise in respondents interested in divesting operations compared to two years ago.

“Changing market conditions and the rise of a handful of well-capitalised legacy business acquirers have continued to ramp up interest in portfolio disposals,” says Andy Staudt, Director at Willis Towers Watson. “We are aware of six to eight sizeable firms across Europe with capital to spend, who are now in active competition for legacy deals.”

Willis Towers Watson notes that these deals not only include portfolios that are in run-off, but increasingly also those that no longer complement the overall strategic direction of a business or where the long-tailed nature of the claims requires specialist management skills.

“This competition, together with the upward trend in insurance M&A activity in the last two years, has created opportunities for firms with prospective legacy portfolios and shifted the focus in the legacy market on to disposals,” says Steve Mathews (pictured), Director at Willis Towers Watson. “Supply-side push effects, such as the increased certainty about Solvency II’s impact on capital, seem likely to bring more deals to the table compared to recent years. Legacy portfolios also eat up a lot of capital for a relatively low return, which means putting a book of business into run-off is now increasingly a strategic choice.”

For those insurers considering disposal as an option, Willis Towers Watson recommends the consideration of all options that maximise the value of run-off and non-core operations, including outsourcing, proactive run-off and reinsurance. According to the company, disposal may not offer the right balance of capital release, complexity, or cost for all insurers, and may even introduce other business risks.

“There are a number of ways to deal with legacy books. The cleanest exit is through a sale, but reputational risk remains a concern for many insurers, especially when handing long-term customers to another company that may be aggressive in pursuing settlements,” says Staudt.

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