The Insurer TV: Legacy’s evolution from conceding failure to capital optimisation

In the latest episode of Prospective, brought to you by The Insurer TV, participants discuss what is driving the momentum in the legacy market and how it has reached its ‘coming of age’ moment.

Legacy is no longer about distressed books – it is about structured transactions that free up capital, which against the backdrop of the current market cycle can then be deployed into new business opportunities at improved rates and terms.

Head of TigerRisk Partners’ legacy practice Linda Johnson said that run-off solutions are now an accepted part of the global industry and a provider of an essential service, however this has not always been the case.

“Historically if you bought a loss portfolio transfer it was like you were conceding failure,” she said.

However, Johnson said that now a run-off transaction is viewed as a sign of a “progressive” insurer that is able to manage its risks and capital properly.

“I appreciate that my balance sheet isn’t identical to others and we can create some win-win solutions.”

Head of TigerRisk Partners’ legacy practice, Linda Johnson

In terms of what is driving the uptick in transactions, one of the key drivers Johnson identified was momentum, with supply and demand growing in tandem.

“As more transactions are announced in the press, there’s more interest, more dialogue of the benefits of it,” Johnson explained.

“That is then creating the reciprocal, creating more supply – so we have demand and supply growing together as these transactions become more common. It’s no longer [viewed as] a risk,” she continued.

While releasing capital continues to be the primary driver of run-off transactions, disposing of non-core business, managing volatility and M&A are all motivators for carriers to explore legacy solutions.

Gossmann & CIE’s CEO and managing partner Arndt Gossmann told Prospective how M&A activity is expected to spur further activity in the legacy market.

“M&A has a huge impact on the legacy market,” Gossmann said.

“Each and every M&A transaction includes business which is not wanted…so there is run-off that already exists in the target company as well as new run-off that will be a consequence of the M&A transaction,” he explained.

Gossmann & CIE’s CEO and managing partner, Arndt Gossmann

Describing the insurance industry as ripe for disruption and “on the verge of profound transformation”, Gossmann said it is widely expected the sector will continue to ride the wave of M&A, citing 30 transactions in the UK and Europe alone in the past six months.

Click below to watch the full episode of Prospective, where we explore the key drivers behind the increasing number of restructuring deals and heightened interest in the market, how solutions are evolving, new entrants and scale-ups as well the sector’s outlook.