AIRROC’s Carolyn Fahey participated in The Insurance Insider Roundtable with other prominent players in the legacy market. It was held in May, 2018, during the annual IRLA Congress in Brighton, England. The Roundtable was a spirited and enlightening discussion on the current optimism in the legacy market, the impact of Brexit, and the overall outlook and trends for the legacy market.
An excerpt of the conversation highlights follows. The full text can be found at the link:
Catrin Shi: We’ve just published our annual legacy survey and the response from the market has been overwhelmingly positive. So, to kick off the discussion, I’d like to ask if the legacy market is right to be so upbeat.
Alan Augustin: The legacy market is absolutely right to be upbeat. We’ve seen significant changes over the last 12 months, in terms of new capital coming into the market, deal size and deal opportunity. Coupled with some of the markets that are opening up as well, in continental Europe, and with new legislation in the U.S., there’s an awful lot of optimism.
Chris Price: From an investment point of view, capital is plentiful and quite cheap. The other side of the coin is that the returns you earn on the assets afterwards are fairly low at the moment and, looking ahead, both of those might flip round as interest rates start to rise.
Shi: Is the U.S market feeling just as optimistic?
Carolyn Fahey: Definitely optimistic! More and more carriers are coming to the table looking for finality.
Paul Corver: Some of the movements we have seen — especially, say, AIG setting up a reinsurance vehicle to pool $40bn of their exit liabilities to better focus and manage them — is an indication of where the big players are going. Zurich is being very active with disposals, so I think we’ll start to see that cascade through a lot of the market.
Charlotte Echarti: From a reinsurance perspective, the biggest change is that the insurance and reinsurance markets feel much more comfortable with run-off transactions. With Hannover Re, five years ago, run-off was focusing on commutations. All reinsurance companies now are starting to be more active in the legacy market.
Barclay-Watt: There is more of an accepted overlap between what works for both buyer and seller. If you looked at the run-off performance of a business in a live composite and then in a run-off player, from both the perspective of the actual underwriting results and the infrastructure operating cost associated with it, it becomes much more justifiable because the results would be better on the run-off side of the fence.
Shi: What about Brexit? Is that going to stimulate further deal flow?
For the full article, refer to page 20 in the Fall 2018 issue. https://www.airroc.org/assets/docs/matters/AIRROC_Matters_Fall_2018_Vol_14%20No_2.pdf