As PwC released its sixteenth Global Insurance Run-Off Survey report today, we took a look at what the legacy reinsurance sector is saying about the growing use of alternative capital in the space, as well as how legacy solutions are now serving insurance-linked securities (ILS) funds and investors as well.PwC releases its legacy report each year during the Monte Carlo Rendez-vous event and over recent years we’ve noted an increasing amount of discussion around the growing connectivity between the legacy and non-life run-off sector and the ILS market.Last year, .Then in February this year, .

Which has turned out to be the case, as we saw run-off market player Enstar , plus embedding its forward-exit option solution into other sponsors casualty sidecars, then more recently .Today, PwC stated that the legacy sector is maturing into a “market for all seasons,” by which it means the breadth of the sector and range of solutions it is offering is expanding, while it is increasingly utilising its expertise in live scenarios as well (so not just running-off risks).PwC’s survey estimates global non-life run-off reserves has grown 11% to reache US$1,129 billion in just one year, demonstrating the significant amount of risk being dealt with through legacy, run-off and finality solutions.

PwC commented that, “When asked to sum up the sector in a single word, popular responses included ‘stable’, ‘evolving’ and ‘dynamic’, capturing the tone of a sector that is actively responding to macroeconomic conditions, capital dynamics and emerging risks.” New capital inflows into the run-off market are anticipated by 87% of respondents to PwC’s survey over the next three years.Largely, this is expected to be in replacing existing capital rather than backing for new entrants, but the growth of alternative capital in the space is also expected to be a feature going forwards it seems.Andy Ward, Corporate Liability Restructuring Partner, PwC UK explained, “The legacy sector is cementing its position as a sector for all seasons, adapting to deliver strong and stable returns no matter the weather.

As the live insurance market shows signs of softening, the legacy sector is well placed to meet future deal flow.Its ability to consistently create value through different market cycles shows why it is increasingly central to the wider insurance value chain.” In PwC’s legacy report that was published today, Ed Johns, Insurance Deals Partner, PwC UK and Hugh Man, Insurance Corporate Finance Partner, PwC UK explained, “Cmpetition is intensifying.Traditional reinsurers and alternative capital vehicles are encroaching on the legacy space, bringing reinsurance-backed efficiency and broader market access.

In response, the most successful legacy platforms are investing in claims technology, actuarial tooling and cross-border execution capability.“They are not only competing on price but also demonstrating strategic value to cedants and counterparties.Scale alone is no longer sufficient, particularly as traditional reinsurers and alternative capital providers blur the competitive lines with legacy-adjacent solutions.” Steve Ryland, Group Head of Retrospective Solutions, Acrisure Re is also quoted in the report, saying, “The market has moved away from pure discontinued lines and run-off portfolios into a product that improves business performance and ROE by transferring reserves and assets on back or prior underwriting years.

The product’s benefits include releasing capital, removing volatility from results whilst retaining profit and simplification of operating model.A new developing area for the product is supporting investors with exit options on new ILS underwriting structures.” Tanvi Patel, Senior Vice President M&A at Enstar features in the report as part of a roundtable and is quoted about the provision of finality solutions to ILS funds and investors as saying, ““We’ve been able to provide forward exit options to third-party capital providers to be able to offer certainty of an exit and we see solutions growing in that space.” Patel also stated that, “Tanvi noted: “Lloyd’s legacy activity is an interesting one, I think there is opportunity around London Bridge Two, which ties in with the ILS discussion, in that it will lend itself to investors wanting exits, and legacy syndicates have a clear role to play here.A softening market may lead to more live carrier consolidation and a focus on portfolio optimisation, which could also spark more Lloyd’s legacy deal activity.” Damian Cooper, Partner, PwC Bermuda is also cited in the report, “Bermuda’s flexible and responsive regulatory regime also continues to foster innovation in the legacy space, most recently demonstrated by Enstar’s Forward Exit Option.” Activity extends to other domiciles as well, with Ricardo Agrella, Insurance Leader, Partner, PwC Cayman Islands stating, “The Cayman Islands has become an increasingly popular location for various run-off deals, such as LPTs and sidecars, often set up as segregated portfolio companies, as well as alternative capacity sources, such as ILS solutions.

“There has been an active exploratory focus on sidecar structures, with run-off insurance and reinsurance companies utliising these structures in offshore jurisdictions to raise additional capital, increase their transaction capacity and transfer risk without straining their own capital strength.” All of which speaks to a sector increasingly embracing alternative reinsurance capital sources, including from direct investors looking for risk-linked returns, as well as those also seeking float (such as in some casualty ILS arrangements).At the end of the day, reinsurance and risk transfer is about matching risks with the most efficient capital, using the most effective structures.The legacy sector has entered an interesting stage in its development as it learns and borrows from ILS market techniques while also now becoming set to be a key service provider to it.

At the same time, the legacy space is leaning on alternative capital to help fund deals and to share risks and rewards of transactions with investors as well.As the legacy and casualty ILS space continues to grow and more innovation helps investors participate more directly in the returns of these arrangements, we can expect run-off specialists and those providing finality solutions to become a key part of the market chain..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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