Insurance and legal professionals expect to see an increasing number of run-off deals in 2021, according to a new report by Global Insurance Law Connect (GILC), a network of re/insurance law firms.
GILC looked at the drivers of legacy business in both mature and emerging insurance markets, helped by member firms in 20 countries around the world.
These firms classified their local run-off market, in terms of both its maturity and direction of travel and looked at some of the dynamics behind these developments.
The confidence in run-off market growth supports the recent findings of a recent PwC survey, which predicts legacy deal activity will remain “at record highs” over 2021, driven primarily by the US and Lloyd’s.
Overall, PwC estimates that the global run-off reserve increased from approximately $791 billion to $864 billion in 2020, representing a 9% increase over the previous year.
“This is a huge market,” said Jim Sherwood, Chairman of GILC. “As always it is fascinating to get insights from such a wide variety of markets into the trends in the run-off sector.
“Probably the best summary of our findings is ‘growth held back by legislation,’” he explained. One universal truth is that in every market insurers are looking for opportunities to divest themselves of unwanted legacy portfolios.”
“While some of the exact drivers may differ, we see a common pattern: in markets where regulation permits portfolio transfers, creative solutions flourish, with multiple parties cooperating in flexible ways; and, very often, delivering a more positive outcome for all parties.”
However, GILC also acknowledged that run-off remains an untested concept in some markets, and insurers could be unwilling to move into this business.
“As a result, there are a number of territories around the globe where transactions do not occur, in spite of the presence and interest of experts in the sector,” Sherwood noted.
In the more mature markets where activity is thriving, growth is driven by a number of factors, including the impacts of the pandemic, Brexit and regulatory requirements.
“COVID-19 has taken a toll of many international insurers’ reserves, changed the profitability of some significant lines of business; and forced everyone in the industry to examine contract wordings, both historic and current,” Sherwood went on.
“Brexit and the requirements of Solvency II and IFRS 17 also continue to act as drivers, while in the US, the increasing use of IBTs (Insurance Business Transfers) in different states is also driving ‘whole entity’ deal numbers.”
