Legacy market grows in 2024: PwC
Slightly more legacy insurance deals were announced in 2024 than in the previous year, but the total size of the deals was likely to be marginally lower, according to PwC.
The accounting firm said it expected to see an increase in reinsurance to close (RITC) deals announced from Lloyd’s in 2025 and predicted the legacy market would see more insurance-linked securities related transactions, similar to those announced by Enstar in the second half of 2024.
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. 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 added.
It added 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 are 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: “Looking ahead to 2025, we may see some RITC’s announced ahead of the Lloyd’s Q4 2024 QMA reporting deadline later this month.
“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 further boost activity.
“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.
The report said several ADCs were brought to market in 2024, but few were successfully executed.
“Some market participants perceive ADCs as vehicles primarily used to transfer unfavourable risks to buyers, often presenting greater downside than upside. From a buyers’ perspective, reinsurance deals are often preferred as they are quicker and more cost-effective to execute, a factor increasingly relevant as the average time to complete a transaction rises.”
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