PwC: bullish legacy market is increasingly accepted

The legacy insurance market is increasingly being accepted as an important part of the overall re/insurance market, according to PwC at its insurance legacy market update, which took place in Monte Carlo this week. 

The wide-ranging panel discussion was moderated in part by Rebecca Wilkinson, corporate liability restructuring director and concluded by Andrew Ward, liability restructuring partner, PwC. 

“A key factor influencing the market is inflation.”

The event started with recent trends and deal activity in North America and Europe. The majority of recent legacy market activity is concentrated in North America, which holds nearly half of the reserves, followed by Europe.  

According to PwC, a key factor influencing the market is inflation, which has posed risks to buyers of insurance portfolios. From 2023 to 2024, 30 deals were disclosed (not including private deals), amounting to $8.1 billion in liabilities, although deal numbers have decreased compared to the previous year, with larger individual transactions. 

North American deal numbers have halved, although the region remains dominant alongside the UK and Ireland. This decrease is attributed to market turbulence and consolidators focusing on specific business lines and regions. 

In 2024, there have been 60 disclosed deals, with a significant uptick in activity in the last few weeks, which is notable as August has historically been a quiet month for deal activity, suggesting that the legacy market remains highly investable. While deal numbers are lower than in 2021/2022, larger deal sizes have become more common. 

Key drivers in the legacy market include the need for capital relief, earnings volatility solutions, and pricing discipline. 

Some deals have been delayed due to gaps in pricing expectations and data quality. Despite these challenges, there is optimism for more activity in the near future. Moving forward, artificial intelligence tools are seen as potentially useful in enhancing deal processes, although the technology is not yet fully mature for widespread adoption. 

The legacy market has evolved, with a two-year lag in deal flow following significant events such as the UK’s leaving the EU and solvency regulations. The need for more insurers, particularly in North America, to participate in legacy transactions, was stressed. 

Global results

In Europe, solvency has been improving post-COVID-19, although there are variations among companies. In contrast, the US is experiencing a decline in capital adequacy, particularly among smaller, monoline insurers. These companies face challenges, including capital depletion due to higher rates and secondary peril losses, particularly in the Midwest. 

The speakers addressed loss ratios, with a notable contrast between Europe and the US. In Europe, motor liability loss ratios have worsened despite increased rates, while general liability shows some improvement. 

In the US, casualty lines are deteriorating, with inflation affecting short-tail lines and workers’ compensation showing favourable reserve releases. The future impact of these trends on solvency remains uncertain, with the potential for reserve releases as markets harden. 

Finally, the speakers discussed reserve strength, noting that while European insurers are generally strengthening reserves, the US has seen 17 consecutive years of reserve releases, driven by short-tail lines and workers’ compensation. There is optimism that reserve releases could continue, but uncertainty remains about the sustainability of these trends. 

For more news from the Rendez-Vous de Septembre (RVS) click here.

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