As legacy and run-off reinsurance specialist, Enstar increasingly provides solutions for the insurance-linked securities (ILS) market, we spoke with Dan Sanford, Managing Director, M&A, at the company’s office in Bermuda, about the role of ILS in the legacy space., a move which builds on a number of completed property ILS transactions and its establishment of its own Scaur Hill Re sidecar, as the company deepens its ILS activities and capabilities.In light of this, we spoke with Sanford about ILS in the legacy sector, touching on education, the attractiveness of ILS liabilities, and also the broader insurance market’s understanding and awareness of embedded exit solutions.“There’s definitely a role for ILS in the legacy space,” said Sanford.

“As a basic concept, sidecars and ILS provide investors with a different way to access legacy business that doesn’t involve buying into a platform.We set up our sidecar last year; Scaur Hill Re, with some third-party investors.Attracting capital really comes down to proving that you have good quality underwriting.

From our perspective, having the opportunity to access different pools of capital at different times is extremely attractive.” While Enstar has a very large balance sheet, Sanford emphasises that capital management is still key.If the firm is presented with several very large and attractive transactions at the same time, it’s useful to be able to tap into alternative capital markets.In terms of education on the ILS side, Sanford explained that while investors may not be experts on the underlying insurance exposures that Enstar acquires, the way the company thinks about and prices deals is very much like an M&A transaction, which means investors are able to understand both pricing and evaluations very well.

“There are complicated underlying risks, but we’ve got a very experienced team in evaluating those.But beyond that, the actual pricing and structuring of transactions aligns quite well to the investor community that consider ILS strategies.There’s definitely some education still needed, but what helps is we do very thorough due diligence on our transactions.

It’s very easy to pass that through to ILS investors to make their own evaluation,” said Sanford.Sanford highlighted strong interest and momentum in casualty sidecars, adding that investors are focussed on structural advantages and where they can add value and efficiency.“Casualty sidecars have been an interesting development in the last few years, and I expect will continue to grow.

Some investors are very focused on underwriting performance, some more so on leverage and growing assets under management.So, it is a real mixed bag.But ultimately, I think robust sponsor processes and strong underwriting provide the most attractive opportunities to investors,” he said.

According to Sanford, a key reason that Enstar thinks that it will continue to see buy-side opportunities is because ILS liabilities should have a finite life due to the way that investors think about their investment horizon.“With the way the market is intended to operate and the motivations of investors to participate in it, they ideally should not remain with ILS investors until extinction.So, if you take that as a principle, a legacy player is the best outlet for that, due to a number of reasons.

We’ve got appetite, we’ve got capacity, and we’ve got the capability of understanding and pricing those risks.So, it’s a really compelling proposition.“Some of the ILS funds’ trapped collateral issues have been well documented, they’re acknowledged and they’re now very focused on what happens if we have a major event, thinking we need to have a liquidity solution for our investors,” he explained.

As mentioned, Enstar is set to provide investors in Artex’s ILS vehicles with access to a diversified suite of prospective and retrospective exit solutions through its Cavello Bay Re subsidiary, designed to support investors throughout the investment cycle.Sanford noted that the understanding and awareness of embedded exit solutions within the broader insurance market is definitely growing since Enstar completed its first in 2024 with Fractal Re.“We’re seeing a lot of demand.

For pretty much every casualty sidecar out there, this is a strong consideration.On the property side as well, people are thinking about it.But especially for the longer duration sidecars – liquidity is a key consideration.

We’re now seeing our competitors coming into the space and looking at the product, or their own form of the product.“We suspected that the ILS space would be the target market, it has other use cases as well, for example Lloyd’s, which has a natural three-year cycle.The market reaction to FEOs has been fantastic and this seems to be the product that the ILS market want.

At inception, one of the obvious questions being asked by investment committees was around liquidity options, and being able to take something to them that is accretive to IRRs, is a neat add on,” said Sanford.Enstar has now done several deals with ILS funds, and expects it to be a growth area moving forward, supported by the unique perspectives and experience the firm brings to the ILS space.“A lot of the previous mechanics in place around commutations, they’re mandatory and there’s not really an appetite to take that business back.

In those circumstances, are you getting the best economics? Is that the most efficient place for that business to sit? On top of that, our primary carrier Cavello Bay Re is A rated with S&P and AM Best, and has over $6.5bn of shareholders’ equity.Moving from a collateralised reinsurance arrangement to a rated carrier, there’s actually just a lot of inherent efficiency in that structure.That’s what we think we can bring to the table, as well as appetite and capacity.

We’ve built a lot of strong relationships within the ILS sector, and hopefully they feel that we are providing solutions that make the market as a whole just a little bit more attractive to investors and can facilitate its continued growth.” said Sanford...All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.