Hopes high for legacy in 2025

After a mixed year in 2024, legacy re/insurers are off to a fast start. 

Bermuda’s legacy insurance industry had a year of consolidation in 2024, but hopes are high for more growth in 2025. 

Industry leader Enstar is still expecting to close its $5.1 billion takeover by investment firm Sixth Street and its partners by the middle of the year in the biggest acquisition the sector has seen. 

Once viewed as a segment that solely dealt with distressed businesses running off their books after ceasing underwriting, legacy is now an important capital management tool for all types of re/insurers, and it continues to innovate. 

That capital management tool was seen again in April when Axis Capital closed a $3.1 billion loss portfolio transaction covering reinsurance segment reserves, with Axis retroceding $2.3 billion of reserves to Enstar. 

Last August, Riverstone International closed a loss portfolio transaction valued at $1.2 billion with QBE Insurance Group while QBE also agreed a transaction with Enstar providing approximately $175 million of cover in excess of the ceded reserves and QBE ceding net reserves of approximately $376 million. The deal with Riverstone also saw 50 QBE employees move to the legacy insurer. 

Accounting firm PwC said in its year-end review for non-life insurance run-off deals that 33 legacy deals were announced in 2024, slightly up from 2023, but fewer than half – 15 – disclosed transferred assets totalling $6.6 billion. 

“ While demand remains strong in North America – particularly for US workers compensation and property cat portfolios – interest is also growing in Europe.” - PricewaterhouseCoopers 

In 2023, 58% of deals were disclosed for a combined value of $8.1 billion. 

“Overall, we consider it likely that the total liabilities transferred in 2024 was only marginally lower than in 2023,” the report said.

It said that 2024 saw “further deal size trifurcation”, with “different groups of market participants taking part in processes and announcing deals at the $1 billion-plus, $100 million to $500 million and sub-$100 million marks”. 

It added: “Earlier in the year, despite some discrete challenges and shifts in the strategic focus experienced by some participants traditionally focused on the ‘middle-tier’ deals, there was still a significant number of multi-hundred-million-dollar deals taking place.”

The report said economic finality deals remained the biggest part of the market with 41% of deals being LPTs and LPTs and/or adverse development covers (ADCs). The second-largest segment was share sales, which constituted 38%. Nine per cent were legal portfolio transfers. 

In North America, which dominates the market, economic finality solutions were the most common structure while the UK has seen several run-off entity share sales, the report added. 

PwC added that market participants “are carrying strong pipelines and a sense of optimism” into 2025. 

“While demand remains strong in North America – particularly for US workers’ compensation and property cat portfolios – interest is also growing in Europe. 

“Educating sellers in continental Europe about the benefits of legacy transactions and streamlining regulatory processes remain key challenges.” 

It added: “Generally, we anticipate an uptick in RITC deal activity in the next 12 months, propelled by cyclical reserve-building following the relatively fallow periods we have seen recently regarding legacy deal activity at Lloyd’s.” 

PwC said it expected the PRA’s finalisation of solvent exit planning rules for insurers which are due to come into force in 2026 to boost activity further.

“The legacy market continues to innovate, highlighted by the insurance-linked securities related transactions announced by Enstar in the second half of 2024,” the report said. “The intersection between traditional legacy and ILS could be a source of future deal flow in 2025.” 

Enstar announced two deals in 2024 which it said could help to release trapped capital in ILS vehicles. 

Despite the success and growth of the sector, at least two of the legacy insurers who report results saw a downturn in performance. 

Enstar’s net income dropped to $147 million from $599 million as the company’s investment returns fell to $218 million from $453 million and its run-off segment profit fell from $104 million to $18 million. 

However, the deal with Axis Capital seems likely to set 2025 up to be a better year while its Lloyd’s syndicate also announced a $196 million LPT with Atrium in April. Enstar also took part in a number of smaller transactions in 2024, including a $376 million LPT with QBE, a $400 million LPT with SiriusPoint and support for the sale of Accredited from R&Q Insurance Holdings to Onex. 

Compre reported a disappointing 2024 when it had an operating loss of $45 million compared to an operating profit of $80.5 million in “a landmark year” of 2023. 

“The Group’s loss was driven by global deal volume being 18% lower than in 2023, the natural unwinding of discounted liabilities, and tail risk materialising on certain claims, for which Compre took the prudent proactive step of strengthening the relevant reserves,” Compre said in a statement. “This involved business largely acquired in 2020 and prior years, with a small number of remaining claims being monitored closely to reach satisfactory conclusions.

“Additionally, while several portfolios were offered in 2024, Compre completed fewer deals than expected, retaining its staunch focus on underwriting discipline. Given these factors, and with Compre’s earnings impacted by the timing of deal activity, the total transacted new business volume in 2024 was $132 million.”

This year, the company said it had closed the purchase of CSE Group, a US subsidiary of French insurer Covea, which included two California insurance carriers. The company also executed a $150 million legacy insurance deal with the Accelerant risk exchange. 

RiverStone International was busy on the deal-making front in 2024, perhaps most notably with a deal of its own: it bought rival DARAG’s North American business. The deal was designed to allow DARAG to focus on its European business, while increasing RiverStone’s North American footprint. 

RiverStone expanded its US footprint in March in the first transaction with its US entity – an LPT with the captive insurer of ride share company Lyft. Last June, the RiverStone had already taken another step to expand its foothold in the US with the purchase of Massachusetts insurer Electric Insurance company. 

In February, it sealed a reinsurance to close (RITC) deal with managing agency Asta to assume a Lloyd’s syndicate’s 2022 liabilities. 

Xitus, a Bermuda-based legacy insurer, also signalled its interest in writing more legacy business in the captive insurance segment.  

For more news on Bermuda Risk Review 2025, click here.

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