Allianz Global Corporate and Specialty (AGCS) is pulling out of financial lines and liability in the region after a surge in class actions contributed to an “ultra-challenging” legal environment.

The business will cease underwriting the long-tail risks in Australia and New Zealand from September, saying it is “untenable” to continue offering the cover given the rise in legal funders, extraordinary claims levels and the exposures of large corporates.

“We have concluded that these conditions are unlikely to change in the foreseeable future,” AGCS Board Member and Chief Regions and Markets Officer Sinead Browne told insuranceNEWS.com.au.

“We therefore feel that these AGCS portfolios are no longer sustainable for us to continue to offer insurance for long-tail risks and regretfully have decided to withdraw from long-tail business in the Pacific.”

Class actions have tripled between 2013-2018, with a surge in 2015 and 2016 when there were 35 actions each year. The severity of the trend has been compounded as average settlements have increased above $60 million over that period, AGCS says.

AGCS is an embedded team within Allianz Australia, which continues to offer long-tail risks.

As reported in a Breaking News bulletin earlier today, AGCS will close its operations in New Zealand as part of the changes, with lines such as engineering, property, energy, entertainment and alternative risk transfer to be written out of Australia.

The change does not impact other Allianz global line entities in New Zealand including Euler Hermes and Allianz Partners, while Allianz also retains Hunter Premium Funding along with specialist agencies Club Marine, Allianz Marine & Transit and Primacy.

The changes will be overseen by James Stack who takes over as AGCS Pacific CEO on August 1 from Willem Van Wyk, who is leaving the group to pursue other opportunities.

Mr Stack has been Head of Market Management AGCS Pacific for the past four years. Previously he was with Zurich Financial Services Australia and has extensive experience in broker relations.

AGCS says 43 employees are affected by the decisions announced today and it is evaluating redeployment options.

“AGCS will also work closely with its customers and brokers to manage the transition of business to alternative insurers,” Ms Browne said.

“Global clients with Australian and New Zealand interests will not be affected by this change and will continue to be serviced by the Allianz Multinational team.”

Ms Browne says that while AGCS is pulling out of financial lines and liability for large corporate risks, Allianz Australia will continue to offer a wide suite of commercial products for SMEs.

The AGCS business will look to drive regional growth in future from its profitable short-tail portfolio.

“We will continue to grow and invest resources in our short-tail business in Australia, particularly focusing on large infrastructure projects [in] which we see immense opportunity, as well as property, the entertainment industry, energy and alternative risk transfer,” she said.

“It won’t be easy, but with the support of our valued brokers and clients, we are confident that within one to two years we will be able to make up for the revenue lost from our divestment from long tail portfolios.”