Discontinued business in non-life insurance: an empirical test of the market development in the German-speaking countries

Although every company has discontinued business, its active management is a relatively new topic in practice and an entirely new field of study in academia. Based on a survey of 85 non-life insurers from Germany, Switzerland, Austria, and Luxembourg, we empirically test the market development and find indication that Swiss insurers seem to have more experience with the active management of discontinued business than insurers in other countries. We explain this phenomenon by that country's more advanced solvency capital requirements that better reflect the risk of discontinued business activities. We thus conclude that with the introduction of Solvency II, active management of discontinued business will become more important since insurers will have to hold higher equity capital for discontinued business portfolios. We illustrate this fact within a numerical example which shows that 23 % of the Solvency II non-life premiums and reserve risk can be traced back to discontinued business.