September 11th, 2017

Run-off Specialists Are Gearing Up For Increased Flows – GC@MC Commentary

Posted at 3:30 AM ET

andrew-beecroft-sm1Andrew Beecroft, Managing Director, GC Securities


  • Challenging markets and active capital management are encouraging carriers to proactively consider reserve solutions
  • A competitive market for acquisition of run-off assets has broadened
  • New entrants are forming in anticipation of increased flows of legacy business

Transaction volumes in the run-off market will continue to grow as a consequence of an influx of capital and increased amounts of buyers and sellers of legacy reserves, according to Andrew Beecroft, Head of M&A Advisory, GC Securities*.

“The specialist legacy market is gearing up in anticipation of more run-off deals. We have seen several new entrants into the space, such as the Arch-backed run-off vehicle Premia Re and the establishment of a run-off platform by Fosun,” Beecroft notes.

There have been some notable transactions this year. In July, Amtrust Financial Services bought USD 400 million adverse development coverage from Premia. At the start of 2017, AIG struck a massive deal with Berkshire Hathaway in which Berkshire agreed to take on up to USD 20 billion in long-tail liabilities written prior to 2015.

However, according to Beecroft, the current flow of legacy run-off business may not yet be meeting demand, and competition over deals is strong. The assessment of the run-off specialists is that they are positioning themselves in anticipation of increased flows in the enduring competitive market.

“As the current competitive market continues, run-off entities expect more companies to discontinue unprofitable lines of business, and if the claims environment heats up, or even normalizes, this might put more business under stress,” he says.

Increased sophistication around proactive capital management is also driving increased use of legacy solutions. “The nature of capital modelling and assessment has developed significantly over the last decade. The markets are driving towards a better assessment of risk capital requirements, largely propelled by rating agencies and regulation, in particular Solvency II,” Beecroft explains.

Within the dynamic of strong competition amongst legacy capital to provide solutions, the once daunting economics of discharging past liabilities has become an analysis of cost of capital and operational arbitrage between the live market and the legacy market. This is set to continue and will create a broader set of transaction outcomes.

Against this backdrop, Beecroft notes, “The broad expectation of a strong run-off market going forward contrasts with rumors that a number of owners of run-off operators have an appetite to exit the market and others are diversifying into live markets. This may suggest some of the traditional run-off market players are less optimistic than the broader market sentiment.”

Notwithstanding this observation, Beecroft predicts that the weight of appetite for legacy risk, combined with insurers seeking active capital solutions in a challenging market, will propel strong market activity.

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*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

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