Comprehensive runoff insurance platform for the sale of life insurance policies

A highly efficient IT platform is the trade secret of a run-off insurer. It allows insurance portfolios to be merged, managed efficiently and profited from. Up to 30% of life insurers are liquidating their old portfolios. Existing policies will be migrated to a new platform based on modern standard software, allowing for cost reductions. A highly efficient IT platform is the trade secret of a run-off insurer. It allows you to merge insurance portfolios, manage them efficiently and profit from them.

Run-off – sale of old life insurance policies

Low interest rates, poor returns in the capital market, new capital requirements, unattainable performance guarantees on existing contracts, etc. All products that give rise to legitimate claims or are of a savings nature, such as health and life insurance, are under great pressure. Insurers are barely able to raise revenues to meet future liabilities.

It is therefore not surprising that more and more insurers are dropping some lines of business, for example in traditional life insurance, and considering new, more flexible products to reinvigorate their business. What to do with existing insurance portfolios and guarantees that affect the statements of financial position? Some insurers, such as ARAG Leben or Basler, have opted for a run-off, which means they have sold their life insurance portfolios.

Generali entrusts 4 million policies to a run-off specialist

A recent example – the Generali insurance company has chosen this route. In the summer of 2018, the decision was taken to sell more than four million high-interest-rate life insurance policies with a volume of around €37 billion to Viridium, the run-off specialist. With a stake of 89.9 percent, Viridium took control of its subsidiary Generali Leben Deutschland, with Generali retaining a minority stake. After a thorough investigation, the Federal Financial Supervisory Authority (BaFin) gave the green light to the takeover on 9 April 2019. The sale is currently the largest transaction of its kind in Germany.

One in three insurers is considering a run-off

Many other insurers are also considering this option: according to a survey by the French fund company Amundi Deutschland among 100 insurance managers at the 12th annual Handelsblatt Insurance Conference in September 2018, around 30 percent of life insurers are looking into the possibility of liquidating their old portfolios. According to the study, about 17 percent are planning an internal runoff, that is, a complete termination of new business and their existing policies. About 13 percent are considering an external runoff, i.e., the sale of insurance tribes to an investor. The existing insurance group will either sell the entire company or the entire portfolio will be transferred to another insurer in its entirety.

The advantage of a run-off is that with the exit of existing business, insurers achieve a positive balance sheet effect and can thus more easily comply with Solvency II capital requirements.

Intensive scrutiny by the Federal Financial Supervisory Authority (BaFin)

The sale, on the face of it, has no impact on the policyholders themselves. The buyer of the portfolio assumes all the rights and obligations of the previous insurer, continues to administer the policies properly and in accordance with the contract – the relevant supervisory authorities, such as BaFin in Germany, make sure that policyholders are not disadvantaged in any way. This principle also applies to the profit share, which must remain stable after the takeover. Prior to the portfolio transfer, supervisors also check the buyer’s economic situation, solvency, reputation and strategy.

Cost as a driving force for run-off

Cost is a key argument for run-off in life insurance. In addition to the pressure of low interest rates on older portfolios, costly portfolio management in outdated IT systems is causing problems for insurers. Transferring portfolios to a new, modern IT platform can lead to significantly more profitable management of insurance contracts. According to a study by Boston Consulting for the Dutch market, modern information technology can be used to reduce the cost of a contract from around €44 down to €16.

“From the perspective of runoff platform operators, portfolio transfers only make sense if the company can reduce the cost of managing policy portfolios through cutting-edge IT,” says Frank Grund, head of insurance supervision at BaFin. Run-off operators attract higher profits because they manage portfolios better, save distribution costs and manage investments more profitably. This seeks to remove mistrust, particularly towards consumer protection agencies.

This is what run-off specialists like Viridium build on. Its business model is based on the fact that old policies acquired are transferred to a new platform based on modern standard software, as Viridium CEO Heinz-Peter Roß explains in an interview with Frankfurter Allgemeine Zeitung in the summer of 2018. “We include in it as many insurance policies as possible, and this allows us to reduce our costs considerably.”

IT expertise is a key resource

It all depends on IT skills, as Frank Wittholt, board member of Ergo Lebensversicherung, pointed out at the Süddeutsche Zeitung “Run-off 2019” professional conference held on 19 February 2019 in Hamburg: “The key resource is the IT expertise you need to have.” Ergo opted for an internal run-off. The new policies are now administered through Ergo Vorsorge LV, while its original “Leben Klassik” life insurance policies are administered on a newly created IT platform.

Ergo needed a new modern IT system with a high degree of standardization combined with support for multi-client care. Therefore, other portfolios can also be managed here. “The most precious resource we talk about is always IT,” says Heinz-Peter Roß, CEO of the Viridium Group. For this reason, the planned acquisition of Generali’s life insurance portfolio is particularly interesting given the expected economies of scale on its platform.

msg.Insurance Suite creates an efficient run-off platform

msg life offers exactly what run-off specialists need: a modern, comprehensive IT solution with a high degree of standardization and automation, years of experience and unsurpassed migration expertise on the market. Insurers and run-off specialists can rely on msg.Insurance Suite because this standard solution digitally maps all the insurer’s core processes in full.

With a high degree of automation and preparation, an end-to-end integrated platform is the key to extremely efficient IT and cost reduction, making it a must-have for run-off platform operators. As the standard software supports multiple clients, a wide range of insurance portfolios can be managed on a single platform. The resulting economies of scale further reduce policy costs.

Reduced costs thanks to self-service

Self-service options are another way of reducing management costs and thus increasing profitability. This is also possible with the comprehensive solution msg.Insurance Suite: with the built-in innovative self-service management portal msg.Online Insure, business processes can be outsourced by the end customer thus reducing administrative costs.

Unrivalled expertise in migration

The issue of runoff is inevitably linked to the issue of migration. Run-off specialists take over a number of insurance policies from legacy systems that have to be migrated to a modern IT platform. Effective standardization is one of the most important criteria for success in avoiding the disproportionate tariff increases of the past. This requires a systematic and effective approach. msg life also has unrivalled expertise in this area: over the last 15 years, msg life has successfully implemented more than 40 migration projects with more than 25 million policies migrated.

msg life – your partner for a successful run-off

The comprehensive msg.Insurance Suite, the self-service msg.Online Insure portal and unrivalled migration expertise provide insurers with the necessary impetus for run-off in the form of process efficiency, cost optimization and productivity. Numerous installations in well-known insurance companies and the successful migration of legacy portfolios are a testament to the performance of our solutions.