The non-life global legacy insurance market has run-off reserves estimated to be worth about $791 billion, an increase of 8 per cent in the past year, according to a survey by PwC.
Its latest Global Insurance Run-off Survey was released today at the 2019 Monte Carlo Reinsurance Rendez-Vous de Septembre.
The US accounts for nearly half of the estimated reserves, while Europe is estimated to have non-life run-off reserves of $292 billion.
Non-life legacy liabilities for the rest of the world are estimated to be $135 billion, with emerging markets including Asia and South America seeing increased run-off reserves.
The survey is based on responses from a cross-section of global risk carriers, run-off acquirers and service providers, and suggests that momentum will continue in a sector which has seen nearly 100 publicly disclosed run-off transactions in the past two years.
Four out of five respondents consider it likely, or highly likely, that they or their clients will engage in restructuring activity in the next three years, citing the release of capital and disposal of non — core business lines as key drivers for this activity.
Respondents expect the US market to see the most deal activity over the next two years, and that the US and UK will continue to feature larger deal sizes than continental Europe.
PwC said these responses indicate that legacy portfolios sitting within live insurance companies will be the main source of legacy transactions in the next year with others noting that Lloyd’s, captives and non-insurance corporates will also feature in legacy deals.
Seventy per cent of respondents believe the level of investment activity in the legacy market will increase in the next two years, while nearly two thirds also believe that regulatory developments will drive increased legacy activity over the same period.
According to the survey results, pricing is the most common challenge faced by buyers and sellers in agreeing deals. Buyers also cited systems and data issues and convincing sellers of the value proposition of legacy transactions.
Respondents noted that board engagement and reputational concerns were the biggest barriers to be overcome for sellers in commencing a run-off transaction.
Jim Bichard, UK Insurance Leader at PwC, said: “We have observed tremendous growth in the run-off sector in the last decade as it has developed into a key component of the insurance macro market.
“As insurance groups continue to embed the culture of repeatedly selling legacy insurance portfolios to drive capital efficiency, profitability or operational savings, I believe this market will continue to thrive as a way to create significant value.”
Giving a Bermuda perspective, James Ferris, director, Advisory PwC Bermuda, said: “Bermuda’s value to the global run-off market continues, attracting those looking to consolidate global nonlife, and also life, reinsurance books. We are also seeing more of the run-off players from the UK and Europe looking at establishing insurance operations in Bermuda for the purpose of consolidation and access to the US markets.”
He said Bermuda-based operations were well-placed to take advantage of US opportunities should the US market embrace insurance business transfers. He also said that the insurance linked securities market looks “ripe for run-off participation”.
Meanwhile, Andrew Ward, director in PwC’s Liability Restructuring team said: “The non-life run-off sector is very active and our survey expects this trend to continue over the next few years, with the US expected to be particularly busy.
“We expect to see larger deals and more deals involving non-traditional run-off lines of business including non insured corporate liabilities.
“We also anticipate that disruption through technological advances in the live insurance market will lead to transactions facilitated by legacy solutions. These developments will see run-off acquirers evolve and adapt their operations to meet the expectations of both sellers and regulators.”