The global legacy market is bullish, with strong demand from insurers for capital-relieving solutions, plentiful supply of capital from investors, and increasing investment by brokers. But while significant opportunities exist, the sector faces some challenges and increased uncertainty as a result of price and claims inflation in a fiercely competitive market.

Those were the themes set out at the launch of PwC’s annual Global Insurance Run-off Survey at the Rendez-Vous de Septembre in Monte Carlo.

The global non-life run-off liabilities grew by $100 billion since the beginning of 2021 to $960 billion in 2022, with over 50 percent of the growth estimated to have emanated from North America, according to the survey. It is estimated that approximately $10 billion of new capital has entered the non-life run-off market in the last three years.

“We are seeing that the sector is in a state of evolution to establish itself as part of the mainstream insurance sector,” said Andrew Ward, who runs the insurance liability restructuring team at PwC UK.

“There’s a lot more segregation and specialisation in this market. And I think we’re going to see plenty of activity through the end of the year.

“But there are challenges. The current inflationary environment is making deal pricing a bit more tricky.”

However, the same inflationary environment could be a “catalyst for more activity as insurers look to alleviate capital pressures associated with retaining non-core books”, Ward noted.

“This means players need to be creative and strategic in how they operate in this environment.”

As the size and the scale of the sector grows it has presented a unique opportunity to strike a balance between increasing regulatory scrutiny and encourage the inflow of new capital.

“Capacity remains an issue in the market and scaling operations to meet the demand for legacy solutions is going to be very high on the agenda of the acquirers’ CEOs and COOs in the next couple of years,” Ward said.

“There is a lot more regulatory scrutiny now than ever before. That’s going to continue to be the case. And of course, there is undeniably pressure to keep the deals on coming.”

He added that carriers are getting more selective. “It’s fair to say that not all the deals that are being presented to the market are actually being done. But that’s a pretty healthy state for the market to be in.

“There’s a lot of capital available to be deployed in this market. But by and large acquirers are being very disciplined in the way they deploy that capital.”

A key highlight of the market in recent times has been a growing investment by brokers in creating or expanding into the legacy space, Ward said.

“We have established players such as Guy Carpenter and TigerRisk, but we’ve also seen people investing across the broking space. Some top talent from the legacy market has switched coats,” he said. “That’s going to mean a constant new deal flow coming out to the market.”

Commenting at the event on how the market dynamics have shifted in the last 20 to 30 years, Paul Corver, director at the Insurance and Reinsurance Legacy Association, said: “Having been in the legacy sector now for 32 years, I know what it was like probably for the first 20 years where we were treated pretty much as the back end of the industry.

“No one wanted to communicate with us. We were there to pick up the rubbish like vultures picking over the bones.

“It’s great to see how that has changed. But there have been a lot of hard-won battles to get a good reputation,” he said.