Survey: Run-off
Exploring opportunities
Bermuda:Re+ILS asked readers to share their thoughts on the legacy market, from the main reasons behind using these solutions, the factors driving growth and Bermuda’s standing in the market.
PwC’s “Global Insurance Run-off Survey 2021” estimates that the global run-off reserve has increased from approximately $791 billion in 2019 to $864 billion in 2021. With hardening market conditions, changing consumer demands and uncertainty stemming from the pandemic, re/insurers are turning to run-off solutions, resulting in growing momentum in the legacy market.
As a leading jurisdiction for the re/insurance industry, Bermuda sees its fair share of run-off business, and this is only expected to continue.
In 2019, legacy acquirer DARAG launched its operation on the Island. Earlier this year, DARAG made its first company acquisition on the Island, buying SunPoint Holdings, a company that offered reinsurance and run-off solutions to US and Bermuda insurers from 2017 to 2019.
In mid-2020, specialist legacy acquirer Compre received approval in principle from the Bermuda Monetary Authority to establish a class 3A reinsurer in Bermuda.
Figure 1:
Why do insurers use legacy/run-off solutions?
The majority of respondents to the survey (Figure 1) believe that making a strategic change to the business is the main driver for using legacy solutions. Facing down a hardening market, many re/insurers are turning to run-off solutions as a tool to reduce risks and refocus on core business.
One quarter of respondents said that capital relief was the main reason for using run-off solutions. Placing parts of a portfolio into run-off offers the opportunity to exit from existing and future liabilities, and thereby releasing capital.
Only 4 percent believed that insurers were using these solutions to save money by outsourcing the management of old business
Figure 2:
What factors are driving the growth of the run-off/legacy market?*
* Respondents could choose more than one option
Every single respondent said that market conditions were making run-off more relevant (Figure 2), with the hardening market behind the growing appetite for legacy solutions. Many will have believed the run-off market would see an increase in transactions over the next few years, but the consequences of the COVID-19 health crisis may perhaps send the market into overdrive.
One respondent was certain that the pandemic would drive growth as insurers look to be rid of some of their liabilities.
On the life side, the desire to de-risk is growing. As Steve Hales, chief executive officer of Resolution Re, the Bermuda-domiciled reinsurance subsidiary of Resolution Life Group, says in an interview: “While interest rates stay so low and the industry goes through the transition to digitise and adapt to consumer habits, the desire to de-risk will be an ongoing trend.”
Other factors were evenly balanced, with the traditional stigma attached to using run-off services disappearing, more insurers being aware of run-off services and the run-off offering maturing and increasingly compelling being selected by approximately one-third of respondents.
While regulators across the globe may be focusing on developing their frameworks for run-off solutions, only 2 percent of respondents cited regulatory changes making the process easier as a driver of market growth.
Figure 3:
How mature is the legacy/run-off industry in Bermuda relative to other global jurisdictions?
In a confidence-boosting vote for the Island, the majority of respondents believe that Bermuda is a leading jurisdiction for run-off (Figure 3). Bermuda’s solid reputation as a destination of choice for the legacy industry will ensure that it receives its fair share of the expected record levels of legal deal activity.
A much smaller number of respondents believed that run-off is the same in Bermuda as other global jurisdictions, while 1 percent of respondents thought that run-off was only just gaining traction in Bermuda.
