Viridium Group either acquires insurance companies and portfolios or enters into service agreements to manage portfolios. This business model, referred to in the industry as "run-off", is still comparatively new in the German market.
The Viridium Group’s portfolio companies are and always remain insurance companies that like any other insurance company act according to customary national supervisory and contractual conditions. What sets them apart from a “conventional” life insurer: the Group and its portfolio companies do not do new business, but focus exclusively on the efficient management of life insurance portfolios.
Lower cost per policy
The business model itself, sometimes referred to as consolidation platform, is based on a simple underlying idea: As the number of policies managed on a single, common platform increases, the resulting economies of scale will lead to lower administrative costs per policy.
To permit consistent implementation of this model, investments in the double-digit million range were made in the IT infrastructure and the group-wide standardised portfolio management system. A decisive factor: The technology upgrade was carried out in strict accordance with the principle of standardisation on the basis of market standards, referred to by experts as "reverse alignment". Only a modernisation consistently tied to market standards will deliver genuinely significant reductions in complexity and substantially improve the user friendliness of data and systems.
Policy holders benefit from the very first day
When their policies are managed by the Viridium Group, policy holders start benefiting from the potential of the efficiency-based model from the very first day. Time and effort for the administration of policies are fixed in the long term from the start – and at terms below the previous expense level. This is possible because the respective portfolio management is performed by a service company owned by the Group at conditions agreed for the long term.
This gives customers long-term, reliable immunity against the frictional losses that generally result from a portfolio closed to new business, namely rising costs per policy. In case of success, customers benefit automatically from the potential for increased efficiency of the business model – on the basis of the Minimum Allocation Decree – due to higher provisions for premium refunds and, for certain products, also from profit participations.
Rights of policy |holders completely |intact
When the Viridium Group acquires companies and/or portfolios, they are transferred in full, including all rights and obligations. The contract contents will be completely fulfilled over the entire period and to the initially agreed extent. This means that no action is required on the part of policy holders. Nor is there any change in contacts or the address and contact details, apart from rare exceptions. Continuity combined with reliability is worth a lot – for both parties!
Agents' claims remain in effect
When an insurance company is purchased, Viridium Group generally takes over all agent relationships as well. However, when an individual portfolio is purchased, those relationships may remain with the original company, depending on the interests of the parties. This is regulated in clauses in the portfolio transfer agreement. In general the agents' claims to the agreed commission types (signing, increases and portfolio maintenance) are unaffected by the portfolio transfer. Which party owes the commissions depend on the details.
Very low lapse ratios
The higher the lapse ratios, the faster the portfolio will be eroded. Viridium Group therefore has a vital interest in ensuring that customers retain their policies with the portfolio companies. If the overall portfolio shrinks unnecessarily, this will lead to inadequate leveraging of the potential economies of scale that are vital to the business model.
A decisive factor for customer retention, along with the services provided under the policies, is of course the quality of service. Within Viridium Group the lapse ratios have steadily decreased to a Group-wide average of 3.6 percent across all policies (as of end 2017).
Stringent regulatory |requirements
To date, Viridium Group has gained approval through the German Federal Financial Supervisory Authority (BaFin), after successfully completing an extensive review, for the acquisition of Heidelberger Lebensversicherung AG, Skandia Lebensversicherung AG and at last in summer 2017 the portfolio of Protektor Lebensversicherung-AG (former portfolio of Mannheimer Lebensversicherung). An important priority for BaFin is ensuring that the rights of policy holders are fully respected in the transfer of portfolios. Viridium Group manages a total of about more than 960,000 policies at present.
As an alternative to the purchase of portfolios, the Viridium Group via its portfolio companies provides third-party administration services (TPA) for life insurance portfolios. Under this model, the policies are migrated to Viridium Group's portfolio management systems, with legal ownership remaining with the original insurer. With the lower maintenance and investment expenditures for IT and portfolio management systems, the insurers gain considerable financial freedom.
At present, the company Heidelberger Leben Service Management GmbH operates as a service provider to manage the portfolios of Clerical Medical in Germany and Austria. Clerical Medical (owner: Scottish Widows Limited) is among Europe's oldest insurance companies and is part of Lloyds Banking Group in the UK.