Legacy non-life run-off market has the fuel to remain hot: AM Best

The legacy non-life insurance market has what it takes to keep 2021 momentum rolling through 2022 and beyond, with enough new entrants and fresh capital to keep valuations in check as primary carriers discover the joys of unloading, analysts at the  AM Best rating agency have contended.

Selling a run-off portfolio has lost its stigma and is increasingly seen as a tool for managing capital and operational efficiencies.

That broad array of motivations won't end soon,  AM Best analysts suggest. Low interest rates and detailed capital requirements make hurdle-rates for back books all too clear. Add in the need to manage those portfolios and claims or maintain legacy IT systems and the choice can often seem very clear, analysts suggest.

And buyers have stepped up, with reinsurers increasingly using the legacy insurance segment as part of their own capital and risk management, especially for long-tailed insurance liabilities. Dedicated specialist run-off buyers are aplenty.

“The segment has seen an influx of capital in recent periods, along with new market entrants,”  AM Best analysts wrote in a segment report. “Conditions remain competitive, which may weigh on deal pricing and prospective profitability.

“Capital inflows are reflective of market opportunities, given the potential scale of the market and stock of global legacy reserves,” analysts write, citing in excess of $5 billion in contributions to the segment over recent years.

Inflation, now including economic inflation and not just social, could be the bugaboo, leaving question marks over reserve levels, and valuations in turn.

“Rising inflation, driven either by economic or social factors, is adding increasing complexity to the accurate estimation of casualty liabilities, increasing the risk of adverse reserve development for insurers carrying these reserves,” analysts wrote.

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