Managing the twin hit of a record year for natural catastrophes and a global pandemic which has caused widespread economic disruption and led to a host of claims has made the past 18 months some of the toughest in the history of the re/insurance industry.

The volatility and unknowns have come one after another, with the market having to adapt to entirely new ways of working as it pushed to keep the wheels spinning for clients and its numerous plates in the air simultaneously.

For the legacy market, the period has prompted a degree of introspection, with new deals and players emerging and a growing sense of optimism as the industry looks towards a future after what is, hopefully, the worst of the COVID-19 pandemic.

A group of senior legacy industry executives came to the Re/insurance Lounge, Intelligent Insurer’s online, on-demand platform for interviews and panel discussions with industry leaders, to discuss opportunities in the market in the coming months.

There is no doubt that the past year and a half has brought some unique challenges for the market to deal with, says Stephen Roberts, chairman and board director at the Insurance and Reinsurance legacy Association (IRLA).

Despite the ongoing disruption and uncertainty however, Roberts argues that the volatility has presented a number of opportunities for legacy carriers to capitalise on books of business for sale from across the sector.

“The last 12 months have been signally affected by COVID-19. What’s been amazing in the legacy space has been our ability as an industry and as carriers to produce fantastic new opportunities into the market, to take up opportunities that have arisen from sellers across a wide range of insurance and reinsurance opportunities,” he said.

“We’ve matured as a market, being able to make these offerings to our potential partners. From the perspectives of direct risk transfer, capital efficiency, and reinsurance deals, lots of competition, and with a lot of transactions in Lloyd’s it’s been quite a lively time.”

Roberts highlighted the increased activity using Lloyd’s of London platforms as a particularly encouraging sign but added that the sector was actively expanding across other markets including life reinsurance.

“Particularly in the Lloyd’s space, on re/insurance to close (RITC) business, there’s real innovation going on, both direct operational and some reinsurance-type deals.

“It’s not just the direct transfer of business skills, albeit our members have tremendous skills across a whole range of different classes and capacity to deal with live to legacy as well as the more traditional older style legacy, which you probably think of as long- tail asbestos, pollution and health hazard,” he said.

Mark Everiss, partner at law firm Cooley, said that the legacy market has coped well in continuing to operate during the pandemic. “The technology has stood up to the test and the legacy market has persevered and adapted,” he said.

“There has been an increasing number of disputes, but I have seen deals done as normal, without delay and claims have continued to be adjusted, reviewed and settled as normal.”

He added that many of the disputed claims are in some way related to COVID-19, including business interruption and event cancellation. He noted that the Supreme Court Decision in the UK Financial Conduct Authority COVID-19 test case had been given in January 2021 and that the market was now addressing COVID-19 reinsurance disputes.

“There has been a rapid acceleration from direct claims to reinsurance disputes,” Everiss said. “We are also starting to see claims on contracts falling under the Insurance Act 2015 come through and we expect more decisions relating to the effects of the Insurance Act coming from courts and arbitral tribunals.”

Tough for carriers

James Bolton, director at independent run-off specialist Quest Group, said that the last year had been tough for carriers, with deal pipelines falling off as previously arranged transactions filtered through.

He added that the carrier had been increasingly active in covering motor legacy books during the period, but that the introduction of more carriers into the smaller end of the market had made the environment even more competitive.

“Quest is at the smaller end of the spectrum, in terms of doing one-off deals. It’s been a fairly tough 12 months. I’d say the first 12 months of COVID-19, we still had all the deals happening that we knew were happening, and we got them over the line. In the second half, the pipelines died down a bit.” Bolton said.

“There’s lots of Lloyd’s and adverse development covers. There’s a fair bit of direct carriers wanting insurance, rather than reinsurance. All these things were a bit challenging.

“We operate more on the distressed end of transactions, so we do get involved in this. We’ve been quite busy with UK motor and Gibraltar motor. We kept ourselves busy.

“It’s a competitive market at the smaller end. There’s maybe three or four more carriers that have come in or acquirers that have come in over the last 24 months, which is sharpening pencils and making life more difficult.”

Paul Corver, group head of M&A at Randall & Quilter Investment Holdings, added that the market had gained even more recognition of its utility outside of a distressed insurer role as a result of the volatility.

He said that across the market, carriers were increasingly looking to partner with legacy players on a capital efficiency basis, rather than turning to the industry only when a portfolio becomes particularly problematic.

“We are as an industry a lot more recognised by the market as being able to provide solutions that work and support their balance sheet,” Corver said.

“I’ve been in run-off for 31 years and it’s only in the last five or so years we can say that has started happening—before then it was always associated with distress or problem portfolios, rather than using it as a valuable tool for capital efficiency.

“We see that right across the market including in the captive insurance space where we are very active, with captives needing to get more capital to write more business into their own vehicle, rather than pay hardening rates to the commercial insurers.

“There’s a lot more activity in that sector, and recognition of what the run-off providers can achieve for them.”

To view an excerpt of the Re/insurance Lounge discussion click here

Images: Shutterstock / Montree studio