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* European closed book insurer Darag opens in Britain
* AIG's Fortitude Re plans European expansion -sources
* Brexit seen less likely to spur deals in closed life
market
By Carolyn Cohn
LONDON, Oct 17 (Reuters) - Britain's impending departure
from the European Union is creating expansion opportunities for
specialist general insurers who buy up and manage policies
closed to new customers.
Whether Britain leaves the European Union without a deal or
under a so-called hard Brexit, British insurers selling policies
into the EU will need a local subsidiary, and vice versa.
British Prime Minister Boris Johnson said on Thursday that
Britain and the EU had agreed a new Brexit deal, but he still
faces resistance from other parties in parliament.
If a Brexit deal is finally agreed it will give insurers
more time to set up EU subsidiaries, but domestic-focused and
smaller firms are reluctant to do this because of the
cost.
Another option for those insurers is to end their overseas
operations and sell books of legacy business to a specialist
insurer.
European insurer Darag - which specialises in buying closed
books - has set up in Britain this year, and expects
Brexit-related deals. The firm, which now has seven UK
employees, has already had enquiries, its chief executive Tom
Booth told Reuters.
Chris Fagan, CEO of insurer Catalina, another closed-book
specialist, also told Reuters that Brexit could have a positive
impact for his firm.
"Brexit is causing EU insurers to look at their structures
and this brings non-core lines into focus, leading to
opportunities for the acquirers," said Andrew Ward, a director
for insurance deals at PwC.
Fortitude Re, a vehicle set up by U.S. insurance group AIG
with investment from private equity firm Carlyle to
house AIG's closed books, is also planning to buy or reinsure
other closed books and expand into Europe, four sources told
Reuters. AIG declined to comment.
There are nearly $800 billion in closed books of non-life
insurance globally, including $300 billion in Europe, according
to PwC. Around $9 billion changed hands across 34 publicly
announced deals globally in 2018, the consultants said in its
first annual deals report.
Closed book specialists take over old policies or reinsure
them, reducing risk for the insurers.
The specialists say they can use economies of scale to
manage them more efficiently. Some also invest more of the
policies in alternative asset classes to increase returns.
"There is a reasonable margin to be made in this area of
insurance," Stephen Roberts, chairman of the Insurance &
Reinsurance Legacy Association, said.
Outside the life insurance sector, insurers are usually
keenest to offload books of business where claims may still be
have to be paid years after an event.
The sector started off with asbestos-related business, but
books of business sold these days include motor, medical
malpractice and also employers' liability, taken out by
companies to cover compensation for work-related accidents or
illness.
Zurich Insurance, for example, transferred UK
employers' liability policies totalling $2 billion to specialist
insurer Catalina in Dec 2018.
Lloyd's of London's decision last year to tell its members
to ditch the worst-performing 10% of their business has led to a
number of closed book deals, including in poorly-performing
insurance classes such as marine.
They include specialist insurer Riverstone's takeover of
policies from Lloyd's syndicate Advent Underwriting in January
2019.
The market for closed life insurance books is also a large
one in Europe, with deals such as Italian insurer Generali's
sale of some of its German closed life business to
private equity firm Viridium last year.
Life insurance is less likely to be impacted by Brexit,
industry sources say, as the business is often more domestic,
and larger life insurers have generally set up the relevant EU
or UK subsidiaries.
But for overseas insurers with small UK life insurance
business, Brexit could be a catalyst that "may cause people to
look again" at their business, Simon True, group corporate
development director at closed life insurance specialist Phoenix
, said.
($1 = 0.7973 pounds)
(Additional reporting by Suzanne Barlyn in New York. Editing by
Jane Merriman)
