The legacy and run-off market is evolving to trade much more like the live market, according to speakers at the Insurance & Reinsurance Legacy Association (IRLA) annual Congress event held in Brighton today, while the opportunity to trade with and support ILS investor exit and liquidity needs is expected to continue, especially in casualty risks.At the IRLA congress media briefing today,  industry speakers highlighted the health of the legacy and retrospective reinsurance market, which continues to shift towards capital-light models.In addition, the ramping up of activity in the alternative capital provider and ILS space, to facilitate exit certainty for investors, continues to be seen as an area of innovation and evolution in the space.Speakers noted an evolution in both the way the legacy and run-off market engages and trades with the live market, as well as in the strategies employed.

Capital light and capital optimisation were phrases regularly cited across the panel of sector participants.Kevin Gill, Chairman of IRLA and a Partner at EY-Parthenon stated, “The core retrospective solution that this industry has offered is in demand, and we see that continuing.But we see that new innovation is actually allowing this industry to get closer to the live marketplace, and that will then enable further growth.” Jamie Saunders, Chief Underwriting Officer at RiverStone International, further explained, “I think we have moved on from just being a solution for troubled books of business.

It is now capital optimisation, earnings volatility protection, balance-sheet simplification and strategic initiatives with cedents wanting to change direction.“So overall, I think we are evolving and continuing to evolve with the live market.As they change, we have to adapt too.

But overall, I think we’re going to enter a good period for the legacy market.” Dan Sanford, Managing Director, M&A at Enstar concurred, saying, “We are a lot closer to the live market than we used to be in a few different ways, just in setting ourselves up for how we trade relative to live markets.” Sanford explained some of the ways the legacy market is getting closer to live, with its work with insurance-linked securities structures and alternative capital investors one area the legacy sector sees a growth opportunity, as well as one that more closely connects the value chains between legacy and live.“As a market as a whole, there’s been a lot more focus on networking and relationships.At the moment, we’ve got about 10 deals in our pipeline with counterparties that we’ve traded with before.

I can’t remember another time that has been quite that high,” Sanford said.He went on to explain that, “On the innovation side, we have products such as forward-exit options, rolling capital solutions, there’s a lot of creativity in our space.There’s been a lot of structured deals over the past few years, but really we need to speak to counterparties and understand what’s the product that they want, and how can we provide that.

We need to remember that we’re still solution providers.We can’t sit and wait for perfect transactions in our perfect form, we’ve got to be nimble.” He went on to state that, “I think the creativity is actually just expanding in the markets.If you look at general themes in insurance at the moment, the MGA-ification of the insurance space and the third-party capital that’s coming into the market on the casualty side.

So how do we adapt our products to service capital-light businesses and third-party capital coming into the space? Those two products in particular are doing that well, and I’m sure we’ll continue to do more in innovation over the next few years.” James Dickerson, Head of Retrospective Reinsurance & Legacy Solutions at reinsurance broker Lockton Re, also spoke on the trend of legacy solution providers partnering with investors.On the use of forward exit options, from the cedent point of view, he said, “These really facilitate long-term strategic partnerships, allowing reserve risk transfer to reflect and support the cedents capital and growth objectives over time.Now, those themselves relate back to the strategic drivers we talked about at the start, but they also provide stable frameworks to fund shareholder value optimisation.” RiverStone International CUO Jamie Saunders pointed out that the forward-exit option (FEO) solution, where legacy specialists are offering investors that back structures such as casualty sidecars and ILS deals a pre-arranged option for liquidity at a defined point in the future, are valuable to the legacy sector as well.

“It’s important to have those partnerships to have that continued flow business.With that, you have these FEO’s, so they are sort of creating that flow business for the future.I think we’ll see more of that.” Finally, Simon Hawkins, Group COO of legacy specialist Compre, discussed , in which it also intends to be an exit and liquidity solution provider for other investors, as well as the evolution of the business model in the legacy sector and the sector’s overall growth potential.

Hawkins said, “The short answer is that the market opportunity here is vast.“Compre’s year, even the last six months, tells that story quite well.We participated in QBE Re’s first casualty sidecar.

That’s an investment we’ve made to learn more about those US casualty reserves, and hopefully then offer a solution to the other investors later down the road.” On the evolution of the legacy business model, Compre’s Hawkins added that, “For me, it’s about, how can you identify those deals that still exist for the right reasons in the legacy sector and complete on those.But also then, how can we change our approach, how can we learn about some of the barriers to grow in the market.And how can we adopt a more capital light approach, an operationally light approach.

That’s where I see the sector growing in innovation, in changing how we do things.” The legacy re/insurance business model is evolving and speakers also discussed the importance of data, technology and artificial intelligence, in helping sector specialists with everything from deal due-diligence to operational streamlining.All of which is expected to enable more capital light business models within the legacy market and as a result partnership with investors may in future become increasingly prevalent, both in providing them with exit or liquidity solutions, as well as in harnessing their capital for growth..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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