The global non-life run-off market continues to grow, says PwC, with estimated liabilities rising 11% to $960bn since the beginning of 2021, according to its latest Global Insurance Run-off Survey.
PwC estimates that since the last survey, over 50% of the growth has emanated from North America, with an increasing number of transactions valued above $300m.
It affirms that these transactions have been driven by strong demand from insurers for capital-relieving legacy solutions, supported by a plentiful supply of capital from investors, which acquirers have used to take on larger and more diverse portfolios.
An additional $68bn of legacy liabilities are held on the balance sheets of non-insurance corporations.
Established run-off acquirers and new entrants are targeting this sector, suggests PwC, as corporations look to gain finality for long-running asbestos and environmental exposures that continue to be a drag on financial performance.
Andrew Ward, Liability Restructuring Partner, PwC UK, commented, “As the sector has successfully demonstrated for some time now, pro-active run-off management can free up the capital tied up in legacy books and allow live insurers to focus on writing core profitable business.”
“We see further opportunities for run-off acquirers as insurers assess portfolios in line with strategic objectives. The ongoing inflationary environment may be a catalyst for more activity as insurers look to alleviate capital pressures associated with retaining non-core books.”
“However, the run-off market itself is not immune and is likely to face similar pressure on its reserves, meaning players will need to be creative and strategic in how they operate in this environment.”
99% of respondents to PwC’s survey said the market has medium to high levels of competition, with the growing number of players and capital available causing many deals to become increasingly competitive.
In some instances, acquirers are being forced to show more flexibility with their pricing strategies to compete, suggests PwC.
However, it notes that acquirers’ underwriting discipline has generally remained strong, and this continues to be vital for the market’s reputation and continued development.
Ward added, “The market is seeing an unprecedented number of opportunities across all segments from very large Loss Portfolio Transfers to small captive sales and increasingly, corporate liability deals.”
“We are seeing greater levels of segregation and specialisation amongst the acquirers as a result and whilst competition in the $100m to $300m deal size range is fierce, there is plenty to keep everyone busy.”
Survey respondents selected general liability, property and casualty, and workers’ compensation as the lines of business most likely to attract interest in 2022.
Motor and financial lines make up the top five, which PwC says reflects the growing appetite for younger and shorter tail exposures.
Additionally, it notes that there remains a great deal of untapped potential in the US and European markets, especially with many re/insurers currently assessing what business is core and non-core.
Ward concluded, “The run-off market continues to evolve and establish itself as part of the mainstream insurance sector. Deal activity in the third quarter has been encouraging, with activity in all of the major markets and a number of acquirers transacting.”
“We are seeing an ever more diverse range of risks reaching the run-off market, including far more recently underwritten business and the pipeline looks strong for the foreseeable future.”