‘Match made in heaven’: legacy and ILS converge to free trapped capital
The once-separate worlds of legacy reinsurance and insurance-linked securities (ILS) are now intersecting in powerful ways, offering answers to one of the ILS market’s longest-standing headaches: trapped capital.
Speaking at Convergence 2025, Dan Sanford (pictured), managing director of M&A at Enstar Group, described how the legacy sector’s evolution has brought it closer than ever to ILS investors’ needs. “Our sector specialises in assessing and assuming retrospective risk,” he explained. “Historically, the sector focused on failed companies or lines of business in runoff. But in the past 10 years, the focus has been a lot more on capital relief solutions.”
That shift, he said, has opened the door to a natural alignment with the ILS market. “Capital relief solutions really walk across quite nicely to the ILS space,” he noted. “What have been some of the major issues covering the ILS markets historically? Trapped capital – investors knocking at the door asking, ‘When can we get our money back?’”
The parallels are clear: legacy providers excel at giving insurers clean exits from old liabilities, while ILS managers are seeking efficient ways to free up collateral and recycle investor capital. “We think there’s a space there for us to assist by enhancing returns for investors and bringing more efficiency to the market,” Sanford said.
Recent years have already seen movement in that direction. “It really feels like there’s been an increased focus on exit solutions over the past five years or so,” he added. Enstar, through its rated carrier Cavello Bay, has started acquiring reinsurance liabilities from ILS-linked structures. “You go from a collateralised model – high levels of collateral invested in cash – to transferring the risk across to a carrier that doesn’t need to post collateral, because it has a permanent balance sheet. That creates a huge amount of efficiency in pricing.”
The potential benefits are twofold: ILS managers gain liquidity and flexibility, while legacy acquirers diversify and expand deal flow beyond traditional runoff. “Providing exits through a legacy market facilitates that rolling of investor capital,” he said. “ILS managers are constantly raising capital… When you’ve got investors that have seen the track record of a fund, they’d love to roll that capital, even if they don’t have new funds available.”
For Enstar, the convergence isn’t just theoretical – it’s already happening. The company has completed several transactions in the past year, moving from “sleeping at the wheel” on ILS partnerships to active collaboration. “We’ve seen a lot more opportunities,” Sanford said. “We’re trying to partner with funds to make both our businesses more efficient.”
Sanford concluded: “A match made in heaven – legacy and the ILS market”.
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