The past 18 months have been a busy time for UK market body the Insurance and Reinsurance Legacy Association (IRLA). Its membership has increased rapidly, and it continued supporting members during the COVID-19 pandemic by shifting its operations and training academy online.

The number of companies that joined IRLA during the lockdown period reflects the fact that legacy is going mainstream. The association has a diverse membership, including run-off acquirers, re/insurance companies that manage their run-off in house, and all the related support services and functions—consultancy firms, law firms and brokers, for example—the growing number of professionals who are associated with or work in the legacy space.

“During the pandemic everyone got on with managing in adversity,” says Paul Corver, an IRLA director and group head of legacy M&A at Randall & Quilter Investment Holdings.

“A lot of companies had impacts on their balance sheet from the collapse of investment markets, and companies and syndicates were going out to raise equity or sub debt.

“Others were looking at doing transactions with the run-off market in order to get capital relief and redeploy capital internally, so a lot of transaction activity suddenly happened, and the benefit of that is that it opened up the eyes of the wider insurance market as to what the legacy market could do and provide.”

IRLA treasurer and director Kevin Gill, a partner at EY, leader of its insurance restructuring and run-off practice and head of EY’s UK corporate simplification and exits business, agrees.

“There is an increasing trend for disposing of legacy using a reinsurance solution to transact rather than a portfolio transfer or a share sale,” he says.

“When the market hardens, and companies want to free up capital, they are now looking to release their back books to free capital to write in a hardening market. That shows how close the legacy market has come to the live market: it becomes a capital resource for the live market.

“That’s a great status for the legacy market—it’s now a very established player.”

Current challenges

IRLA’s liability-carrying members continue to face a very low interest rate and low return environment combined with social inflation, in particular in the US on some casualty lines.

“For a pure run-off book there’s no premium income coming in, so you’re trying to balance the books with your investment returns, potentially increasing costs, and increasing claim size or claim value,” says Corver.

“This has to be very carefully managed and monitored. A number of IRLA members assist the market in that regard—whether it’s proactively managing claims or advising on capital structures and investment strategies to try and get better returns without negatively affecting the capital requirements.

“In that sense there is no significant difference from how it’s been for quite a few years—a depressed investment return environment,” he explains.

Gill notes that as some of the acquirers grow and become more global, they are looking more closely at global models, operational governance and conduct.

“As they become a more integral part of the marketplace and deal with different types of liability and policyholders, the conduct side and getting that delivery of the insurance product right is becoming increasingly important,” he says.

“Therefore, some of the larger acquirers are looking at their delivery structures, using things such as third party administrators with appropriate control and governance and doing it cost effectively—because you’ve got that limited investment income over the top of the profit and loss these days.”

Another challenge is the increased focus from regulators in the run-off space as it grows, taking on tens of billions of pounds’ worth of liabilities.

“This increases the focus from regulators, which is not necessarily a bad thing, but it can be a challenge,” says Corver.

“This is especially the case with some of the European regulators who aren’t so familiar with how run-off operates. Perhaps they need some education and need to be brought up to speed with some of the mechanisms and solutions that the legacy market provides.

“More work perhaps needs to be done in house but it all links into better governance and better control.”

Going mainstream

As legacy goes mainstream, brokers are increasingly seeking opportunities for their clients to achieve capital efficiencies and to streamline their operations by trading with the legacy community.

“It’s good because brokers have been absent from the legacy space for many years, but are now very engaged—that is a reflection of how intertwined it is with the mainstream sector,” says Corver.

He adds that there are opportunities for run-off specialists to partner with the buyer of a live business to take out the back book. The run-off can be carved out giving the buyer a clean platform from which to underwrite.

Future developments

Against this backdrop of growth and increasing integration with the wider re/insurance market, the post-COVID-19 landscape for IRLA looks bright: it’s getting back to hosting live networking, training and events, and continues to welcome new members—particularly to its young professionals group.

“This now has over 400 members, and part of the training we are providing aims to extend and share the knowledge that’s in the heads of the older members who have been in the industry for over 30 years,” says Corver.

“Now the legacy sector is appealing to bright young graduates and college leavers as a career prospect—which it didn’t do for the first 20 or so years of its existence.

“It is a very exciting career to go into and we have a very lively and burgeoning young professionals group within IRLA, and a very intensive mentoring programme to ensure that knowledge transfer is happening and that these youngsters are getting the opportunities to learn from the experience of the older members. That will continue, and is a big focus for the association.”

As part of this, IRLA is publishing a new handbook and running its annual Young Professionals Group Awards. “This year’s five shortlisted candidates were amazing,” says Gill.

“It’s great to see such innovative, bright, interested people coming to our sector and I think any one of the five could have won. They really enjoy this industry and get something out of it from a technical point of view and an innovation point of view.

“There’s a lot of young blood coming through to this industry, which is great to see.”

Images, from top: Shutterstock / Martin M303, captureandcompose