QBE seeking $300mn NA E&S legacy portfolio transfer

Australian carrier QBE is marketing a $300mn North American E&S portfolio to the legacy sector as the carrier seeks to bolster its balance sheet from any pandemic-induced economic fallout.

The move to offload the portfolio comes as QBE looks to de-risk its business in preparation for what its chief executive has today labelled “a deep and extended recession”.

Earlier today QBE unveiled plans to beef up its balance sheet with a A$1.3bn ($825mn) equity raise.

As part of the Q1 update and capital plan from the carrier, QBE revealed plans to “bolster the Group’s capital, reduce gearing and improve earnings resilience”.

While QBE did not expand on the type of run-off transaction it was seeking, potential legacy counterparties with the scale to handle the $300mn portfolio could include the likes of Darag, Enstar, R&Q and Riverstone, or reinsurers like Berkshire Hathaway, Catalina and Munich Re who provide retroactive reinsurance capacity.

While QBE said the move has been informed by the economic uncertainty from Covid-19, its desire to execute a legacy transaction comes at a time when (re)insurers are increasingly looking at ways of offloading back-year liabilities to free up capital, boost returns and reduce earnings volatility around prior-year reserve movement.

The use of loss portfolio transfers (LPTs) and adverse development covers (ADCs) by (re)insurers to address their non-core legacy operations have become popular options in transferring old liabilities off their books.

Meanwhile, insurance business transfers (IBTs) are also beginning to emerge as a potential restructuring option in the US as structured solutions become part of the wider legacy universe.

QBE’s move to market its North American E&S portfolio to legacy players is not the first time the carrier has sought to transfer old portfolios off its business.

QBE has been an active player in the run-off market, with the company having utilised the sector in the past to help manage some of the older exposures within its portfolio.

Several of its moves have involved business that had previously been written by its North American operation.

Back in 2017, QBE agreed a deal with Enstar whereby the Bermudian legacy specialist agreed to reinsure a book of discontinued workers’ compensation, construction defect, and general liability business.

A year later, QBE Equator Re facilitated the loss portfolio transfer of $436mn of legacy North American reserves to a third party, understood to be a subsidiary of Bermuda’s Armour Group.

Last year, QBE transferred a $200mn employer’s compensation book to the Hong Kong branch of Swiss Re Corporate Solutions.