Desire to access new capital suggests ILS role in run-off market: PwC


The expected growth of the global run-off market and the apparent willingness of buyers to access new forms of capital suggests the insurance-linked securities (ILS) space could increasingly work with the run-off market, insight from PwC suggests.

The insurance and reinsurance run-off, or legacy transactions market continues to gain traction, resulting in the establishment of specialist run-off entities and the attraction of new capital from a range of investors.

At the same time, investors in the ILS space appear increasingly willing and able to participate in insurance and reinsurance run-off transactions, which could see the two markets increasingly work together in the months ahead.

PwC’s 2018 Global Insurance Run-Off Survey notes an expectation that the momentum seen in the run-off market in recent times is set to continue for the foreseeable future, regardless of market headwinds and the subsequent challenging operating environment.

Artemis has discussed previously how run-off market specialists expect the alternative reinsurance capital and ILS investor base to show an increased appetite for run-off business, as buyers look to access new capital providers and investors look to access the returns of non-life run-off re/insurance portfolios.

As part of PwC’s recent survey, James Ferris, PwC Bermuda, described Bermuda as the nexus of ILS and re/insurance run-off, owing to its experience in both the run-off and ILS markets. And, with ILS and run-off transactions gaining momentum in other parts of the world, as seen with the establishment of ILS regulations in the UK, for example, the two markets could increasingly work together in the future, both in Bermuda and elsewhere around the globe.

“Bermuda is, and has been for a number of years, the home of many of the global consolidators of non-life run-off liabilities such as Catalina, Enstar and Armour. With the formation of entities like Premia Re in January 2017, Bermuda’s position in the run-off market shows no sign of abating, not least because it has sustained good returns despite the generally low return environment,” said Ferris.

This, combined with Bermuda’s strong position in the global and expanding ILS space, suggests “Bermuda is well-positioned to bring together the best of the ILS and run-off markets, having the greatest global market share of ILS and being a traditional centre for (re)insurance run-off entities,” continued Ferris.

In the second-half of last year PwC said that buyers in the run-off market were increasingly looking to access new forms of capital, which, the ILS marketplace appears willing and able to provide.

This message was echoed once again by Chris Fagan, Chief Executive Officer (CEO) of run-off specialist Catalina, within the latest PwC global survey.

“New entrants and new capital into the run-off market have increased recently. We see this as a positive development as the increasing number of options for sellers and increasing size of the larger consolidators is helping the market to grow. The market is becoming larger, more liquid and more sophisticated, offering a broader range of attractive options for sellers,” said Fagan.

Despite returns in the global reinsurance market somewhat improving at the recent January 1st renewals, after high levels of catastrophe losses in 2017, the abundance of capital in the space has moderated price increases, with some in the sector suggesting a flatter reinsurance underwriting cycle moving forward.

In light of continued pressure on earnings and intense competition, ILS investors appear eager to grow their participation in diversifying re/insurance risk, and the run-off market might well see an influx of new capital as third-party investors increasingly view legacy transactions as an attractive class of business.

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