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Market conditions suggest increased flow of legacy run-off transactions: GC

13th September 2017 - Author: Luke Gallin

In light of intense competition in the marketplace and the continued influx of capital, the number of transactions in the run-off market will continue to expand, according to Guy Carpenter’s (GC) Head of M&A Advisory, Andrew Beecroft.

Guy Carpenter logoIncreasingly active capital management combined with challenging markets across the risk transfer industry is leading carriers to consider reserve solutions, says GC’s Beecroft.

New entrants continue to enter the marketplace amidst the expectation of increased flows of legacy business, a trend that’s set to continue.

“The specialist legacy market is gearing up in anticipation of more run-off deals. We have seen several new entrants into the space, such as the Arch-backed run-off vehicle Premia Re and the establishment of a run-off platform by Fosun,” said Beecroft.

He highlights a number of deals that have occurred so far in 2017, including AmTrust’s $400 million purchase of adverse development coverage from Premia, and the deal between AIG and Warren Buffett’s Berkshire Hathaway, which saw the latter assume up to $20 billion in prior long-tail liabilities.

But despite these deals, and others throughout the year, Beecroft feels the volume of transactions is failing to meet demand, and underlines that competition for deals is fierce.

“As the current competitive market continues, run-off entities expect more companies to discontinue unprofitable lines of business, and if the claims environment heats up, or even normalises, this might put more business under stress.

“The nature of capital modelling and assessment has developed significantly over the last decade. The markets are driving towards a better assessment of risk capital requirements, largely propelled by rating agencies and regulation, in particular Solvency II.

“The broad expectation of a strong run-off market going forward contrasts with rumours that a number of owners of run-off operators have an appetite to exit the market and others are diversifying into live markets. This may suggest some of the traditional run-off market players are less optimistic than the broader market sentiment,” said Beecroft.

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