Building for the future in the legacy markets

The final weeks of 2021 are a good time for the legacy sector to look back and consider the strides that have been made through the ups and downs of the past 18 months.

The industry has suffered the same turbulence as most other segments of the market with the disruption of the COVID-19 pandemic, but is set for another bumper result with an estimated $5 billion of transactions conducted this year.

Looking ahead, there is optimism about the increasing acceptance of legacy as a mainstream partner for carriers with distressed books as well as capital efficiency programmes, but where does the market go now?

A group of senior legacy industry executives  met in the Re/insurance Lounge, Intelligent Insurer’s online, on-demand platform for interviews and panel discussions with industry leaders, to debate how the shifting regulatory environment is affecting the market.

Paul Corver, group head of M&A, Randall & Quilter Investment Holdings, believes that the market is set to continue its positive trajectory as it becomes an increasingly important partner for offsetting live liabilities.

“We are going to see more of the same, the market will grow in its attraction to the live sector for offloading unwanted liabilities and portfolios, but also the newest slant of capital relief assessment. I think we will see an increase in the use of insurance business transfers (IBTs) in the US with Oklahoma,” he said.

“That tool will be widely adopted across the US because they have been left behind Europe in that regard for the accumulation and aggregation of portfolios from disparate organisations.”

Corver highlighted that there remain a significant number of companies which are content managing any run-off business in house, and which should work with the sector to help improve.

“We shouldn’t forget that a lot of companies out there are perfectly happy managing their run-off in house. And that is part of what we do, IRLA has members from that sector as well as the acquirers and that is an increasing opportunity for companies to use IRLA and the educational aspects of it, to understand how they could manage them in house if they chose not to dispose,” he explained.

“We want to give them the focus and the proactive management that they often need, rather than the policies being left in the back cupboard with the semi-retired team that wrote them 20 or 30 years ago.

“In the next five years, we’ll see continued growth and development of the sector and continued reputational advantages and benefits for the live sector in transacting with run-off.”

Mark Everiss, partner at law firm Cooley, agreed that the sector is cyclical in its approach to claims handling and is very competitive, adding that it represents a good environment for the future with many new opportunities.

Stephen Roberts, chairman and board director at the Insurance and Reinsurance legacy Association (IRLA), said one of the main focuses of the organisation in future would be helping to develop a talent pipeline for companies operating in the market.

He said that the industry as a whole needed to invest in up-and-coming talent to help build a workforce that was capable of competing in the markets of the future.

“It’s a very big focus for us as an association. It’s an area that we can come together on, because together we’re stronger by producing that talent into the market. We have a number of initiatives to help make that happen,” Roberts said.

“The insurance and reinsurance industry generally hasn’t done a good job of selling itself to future talent. Within the wider market, there was a de-skilling that went on in the insurance industry, in the decade to 2010, where it seemed that low internal spend on training and development was a feature of the balance sheet.

“That’s a fool’s paradise—we have to ensure that talent is coming through.

“We have a number of initiatives through which to ensure that our talent is recognised and nurtured. We have built up a very strong mentoring scheme and the leaders of our industry are prepared to provide their time and listen to the requirements of people coming into the space in order that we can move forward very quickly.”

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Talent needed

PwC director Andrew Ward told the panel that the sector had a lot to offer, with a growing role in the marketplace and the potential for further growth, particularly in the US, and that the insurance sector and other sectors with exposure to long-tail liabilities provide a wealth of opportunities for those working in legacy.

“It is a good place to work because it offers interesting commercial challenges, with complex legal and regulatory issues. People like solving those problems and the sector has had a lot of talented individuals to date but does need to focus on a diverse and inclusive talent pipeline for the future of the sector,” he said.

“Growth in the US will be steady rather than a complete explosion in IBTs. There have now been over 300 part VII transfers in the UK. It’s a tiny market compared to the North American market. So I do think the potential for growth there over the medium to longer term is enormous.”

Ward pointed to recent transactions by large carriers to divest books of business as evidence of the type of demand that the legacy market was increasingly rising to meet.

“They want to take volatility out of their business. And that means reducing long-tail risk and liabilities,” he said.

“That is a great message for this market.”

To view an excerpt of the Re/insurance Lounge session click  here