Many insurers are charting new strategic directions to help them become more customer-focused. However, while these organizations hone strategies around clearly-defined client segments and core assets, they should also ensure that existing legacy business features strongly in their analysis.
As a result, legacy business issues are making their way onto boardroom agendas at many of the largest insurance groups. These firms’ senior leadership realize that dealing with legacy business effectively and efficiently is a key factor to support growth, and they want to determine if their legacy business is being managed appropriately.
There is, of course, still plenty of room for improvement: While many businesses are applying best practice around reporting lines and performance management in underwriting, claims or finance functions, we don’t always see this same thinking applied to the management of legacy liabilities.
Insurers with legacy portfolios should consider:
- Do you have a coherent strategy for your legacy business and if so, is it consistent with the group’s wider business and customer strategy?
- Do you have a clear understanding of the impact of your legacy business on P&L and capital?
- Have you determined a target operating model for your legacy business and does the business operate in accordance with that model?
- Does your legacy business show best practice in the management of claims, reinsurance collections and other operating functions?
- And, do you have a strategy for the ultimate release of the capital that supports the legacy business so that it can be utilized elsewhere in the group?
In terms of capital release strategies, there is strong interest among general insurers in selling their legacy portfolios. An increase in M&A activity is being driven by potential sellers who want to resolve legacy assets that are non-core to their strategy or that create a capital drag. We also see that experienced acquirers are being joined by new specialist capital to aggressively pursue legacy business opportunities.
Such activity can complement either a seller’s or buyer’s customer strategies. For example, a sophisticated legacy business buyer with the right experience and focus can deliver dedicated attention to legacy customers. On the flip side, the seller of the legacy business can redirect the capital from the divested legacy book to focus on their current and future customer base, and invest in products and markets that meet changing consumer needs.
While insurers can realize many benefits through transactions, they must also be cautious, in order to maximize potential value. Any legacy asset disposal must be accompanied by in-depth market evaluation, market entry advice and vendor due diligence to prepare and market assets for sale.
Regardless of whether an insurer decides to sell non-core assets or simply take a disciplined approach to the efficient management of potentially capital intensive legacy businesses, dealing with legacy assets is a crucial step on the journey to customer centricity.
Mike S. Walker
Partner, Head of Insurance, Transactions and Restructuring, KPMG in the UK
+44 20 7694 3198
KPMG’s global network of Insurance Transactions & Restructuring professionals work with member firm clients around the world to help them achieve maximum benefits from complex cross-border transactions.