Arndt Gossman, DARAG Gaining the advantage


A


s Solvency II looms on the horizon, it is important for companies to ensure that


they are running as streamlined an operation as possible. The new regulatory regime will mean that any liabilities will need to have carefully measured amounts of capital posted against them. This includes two decisions to be taken reg-


ularly: whether the results of an active line of business imply that writing the business should cease and second, whether the discontinued business shall be kept on the company’s books, according to Arndt Gossmann, chief executive officer of DARAG AG. “In the past, insurance companies have


managed their assets, claims and their premi- ums,” he says. “What is obvious for the future, and is required by Solvency II, is that the li- abilities will need to be analysed, optimised and managed as well. In three years every manage- ment team will include a chief liabilities officer, which you can rarely find at the moment.” This will allow companies to make a deci-


sion about whether the structure of the liabili- ties they have, with regard to the risk mix, are suitable for them in the future, especially in light of the impact of Solvency II after it comes into force. “There is definitely an advantage to be


gained from constantly monitoring the liabil- ity structure in terms of whether it fulfils your needs in terms of profitability and capital re-


Interview:


24.10.11 MONDAY


Arndt Gossmann, chief executive officer of DARAG, tells Intelligent Insurer how companies can optimise their efficiency through outsourcing their run-off business.


Arndt Gossmann, chief executive officer of DARAG


can still have a positive diversification effect on your liability portfolio,” Gossmann says. “But also it can not. After all, the insurer needs to


“If this is mid- or long-tailed business, the insurer must still face the consequences of writing that line in the first place.”


quirements,” he says. “Thus far the active in- fluence on the liability structure was limited to an adoption of the underwriting and limited influence on settlement. This is not enough any more,” argues Gossmann. If this is mid- or long-tailed business, the in-


surer must still, and frequently, face the conse- quences of writing that line in the first place. It must be an active decision to keep discontinued business, which has been closed in the past for good reasons. “Business which you have stopped writing


make a decision about whether it wants to keep hold of the liabilities or to externalise them.” If a company wants to externalise the risk,


theoretically it has three options. One is to transfer the business to a third party, such as DARAG, the second is to have a retrospective reinsurance cover on the liabilities of the dis- continued business and the third is to use se- curitisation. “If it’s the first option, the company will


transfer the risk, usually through a portfolio transfer or, in rare cases, by transfer of an en-


6 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Monday October 24 2011


tire legal entity,” says Gossmann. “The essence of this transaction is to provide full finality. The evident advantage of a portfolio transfer is that the risks will be transferred by the means of an authorisation of the regulator and then it is a full and final transfer. “This is in comparison with retrospective re-


insurance, which can be supported only if the assuming reinsurer is large and stable enough to provide the full protection. If not, you are just swapping a liability risk into an address risk of a reinsurer. Finally there is the option of secu- ritisation, but realistically this can be done only with huge amounts of business and can be very complicated.” The key point Gossmann makes, therefore,


is that the ceding insurer or reinsurer has no exposure to the risk at the end of the transac- tion. The only way to achieve that is through a portfolio transfer.


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