Interview: Arndt Gossmann, DARAG A


s investors continue to seek stable income options via non-correlated risks, run-off is becoming an increasingly attractive asset, says Arndt Gossmann, chief executive of run-off specialist, DARAG. This increased interest spurred DARAG to


launch Rpad earlier this year, a customisable and ready-to-use service for potential investors who want to invest in run-off risks which, Gossmann says, offers an excellent alternative to an equity investment. “Run-off portfolios, compared to active insurance portfolios where you have to consider the


underwriting risk, are more mature


and generally less volatile, offering greater predictability. This makes run-off a fantastic alternative to an equity investment,” he says. “Investors don’t have the infrastructure to


facilitate these kinds of investments, however, and this is where Rpad comes in. It provides a platform for anyone that has, or would like, investment access to a certain portfolio. It’s like renting a fully managed insurance company.” Gossmann explains that since the first suggestions to create the platform, the Rpad has experienced growing demand, and overall, he expects the volume of insurance-linked securities (ILS) to double within the next five years.


He adds: “Of course, at a later stage it also gives us the opportunity to generate customised portfolios for individual third party investors by offering existing books that we already have in our balance sheet, but the trigger has been the explicit demand on the investor’s side to buy run-off portfolios without having to buy an insurance company.” The sidecar-like structure will bring many benefits to DARAG. “From our perspective, there


are two


dimensions in the Rpad: first, it gives DARAG the chance to grow faster in liabilities under management. As a consequence we achieve broader diversification on a group level which allows us to reduce capital costs under Solvency II.


“The second dimension is that Rpad will


help us get closer to our clients and respond even more effectively to their needs as we can now structure large and complex transactions with greater flexibility,” says Gossmann.


Strategic growth Already a leader and well known name in the run-off business, DARAG will centre its efforts


Arndt Gossmann 6 | BADEN-BADEN TODAY | DAY 1: Monday October 19 2015


19.10.15 MONDAY


Facilitating growth


Run-off business is gaining increased interest from investors. Arndt Gossmann, CEO, DARAG, talks to Baden-Baden Today about the benefits of its new run-off platform for investors and for the run-off specialist itself.


around continuing to strengthen and broaden its position in Europe. “By number of transactions, we are the


most visible run-off company in Continental Europe. Our ambition for the coming months is to further


increase the volume of our


transactions,” he says. “Our first objective however, is to get closer


to our clients in all European markets, which are growing due to Solvency II. Our business is highly connected to trust and confidence, and both come hand in hand with proximity. That is why we are currently broadening our presence across Europe with people on the ground.”


Gossmann adds that on the continent, run- off is a relatively new field. “We gain trust by being next to our clients


and we want to maintain that client-centric relationship approach during our growth,” he says.


Last year’s takeover of DARAG by Keyhaven has given the company the backing


it needs to secure much larger transactions— something that Rpad will also help to facilitate. “The Rpad will change and optimise the


way we structure large transactions, but the type is not going to change much,” he explains. “Our ability to engage into large transactions was boosted last


year, when our investor


Keyhaven took over 100 percent of DARAG. Geographically, we remain concentrated on Europe; our clients are European insurance companies.” As Solvency II looms, it would be easy to


assume that the run-off market will quieten as insurers become accustomed to the expectations of the directive, but Gossmann says that this is simply not the case. “For insurers Solvency II is still right at


its starting point. Currently, the market is dominated by large-scale transactions coming from the big insurance companies. They are fully Solvency II-compliant and seeking now to optimise their position by releasing capital,” he says. “The mid-size and smaller companies, are


however, still right in the middle of


implementing Solvency II, and it will be some time until they have the capacity to focus on optimisation. All this is still to come.” Gossmann adds that according to PwC,


there is around €247 billion ($280 billion) of discontinued non-life liabilities in Europe. While not all of that will be transferred, he says that based on the company’s experience from previous years, a third will be considered for externalisation, creating a qualified market of €80/90 billion. “I’m expecting the total volume of run-off transactions to reach €4 billion over the next 12 months; that’s still a long way from the €90 billion,” he says. “Overall, I think it will take around three years from Solvency II’s implementation until we see the peak.” n Arndt Gossmann is CEO at DARAG. He can be contacted at: a.gossmann@darag.de


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