MGAs’ reckoning; legacy’s opportunity
For several years, one of the insurance industry’s biggest growth stories has been the rise of managing general agents (MGAs) and the fronting carriers that provide them with access to paper and capacity.
But rapid growth can leave a legacy of its own. “For a few years we felt the MGA/fronting/reinsurer model would implode. This has started to happen over the past 12 months,” Phil Hernon, chief operating officer and head of distribution at Carrick Holdings, told Bermuda:Re+ILS.
Hernon is not suggesting the MGA model itself is disappearing or that, if managed responsibly, it is inherently bad. Its growth continues, and delegated underwriting has become an established part of the insurance landscape. Rather, strains are emerging in parts of the ecosystem that expanded rapidly alongside it.
“These carriers have seen some mixed results and deteriorating portfolios from periods of rapid growth and relaxed appetite and oversight, and now they are looking to pivot away to different lines and territories and retention models, so they are turning to the legacy market to create strategic solutions to unlock trapped capital,” he said.
For Carrick, that is becoming one of the most interesting sources of new business. At the same time, the company has increasingly focused on proprietary transactions as competition for broker-intermediated deals has intensified. “We still participate in tenders, but are selective,” he added.
Discipline over deal flow
That selectivity reflects a wider philosophy at Carrick. While parts of the legacy sector have been moving closer to the live market, Carrick continues to favour what Hernon calls “non-green legacy”: portfolios that have preferably already been in run-off for at least three years.
It is an approach rooted in the belief that maturity provides greater visibility over the liabilities being acquired. Carrick remains interested in traditional legacy books, including US asbestos, pollution and health hazard liabilities, although Hernon stressed that getting the price right remains fundamental to interest.
There are also areas where the company is prepared simply to stay away. Carrick does not write life or medically related liabilities such as medical malpractice, while recent nuclear US court decisions have made it more cautious around US auto, including commercial.
That caution is well placed as uncertainty around casualty reserving, social inflation and litigation continues to trouble the wider market.
For Hernon, sophisticated modelling is essential, but the principle underlying it is straightforward: “If you get this wrong it will impact the portfolio for ever. We have to retain our underwriting discipline and not adjust the pricing to seek deals.”
It is a lesson he believes some in the sector have learned the hard way. “The risk never changes, so you must price it and include all the downsides,” Hernon said. “Some of our competitors will not, and they will continue to fail to learn from the past.”
The lines begin to blur
At the same time as Carrick holds to a relatively traditional view of the liabilities it wants to acquire, the legacy market around it is changing.
Legacy has moved significantly closer to the mainstream of re/insurance, driven partly by the growing financial strength of some acquirers and a relative shortage of large traditional run-off transactions. Larger balance sheets have allowed some firms to move closer to live business, while the expertise accumulated in the legacy sector is being applied to increasingly complex problems.
“The legacy market has substantial talent within it, and it provides innovative solutions that, combined with balance sheets, are attractive to the customers,” Hernon said.
But he remains cautious about where that experimentation might lead: “I am not sure all of the steps taken by our peers will be successful – but watch this space.”
What does appear increasingly clear is that legacy transactions are no longer viewed solely as a way of disposing of unwanted liabilities. Clients might still wish to exit closed portfolios, but they are also using transactions to release capital, reduce volatility and simplify their organisations.
From Carrick’s experience, the motivation is often a mixture of those objectives. Where a portfolio or company has been closed and management wants both to simplify the business and release capital, Hernon sees a particularly natural role for the firm.
“This is exactly where Carrick can help them – it is our sweet spot,” he said.
The capital supporting the sector is changing too. Hernon believes private equity remains cautious about legacy following previous experience in the market, but family offices, reinsurers and asset managers are showing interest.
Winning their confidence will require the sector to deliver: “The legacy market needs to produce results and work in partnership with investors,” he warned.
Success will inevitably attract additional capital and put pressure on pricing. At the larger end of the market, however, Hernon expects something more fundamental – greater convergence between legacy, live insurance and investment.
Technology could accelerate that process. AI is already being used at Carrick in due diligence and claims analysis, while Hernon expects Bayesian claims modelling and other analytical tools to have a significant impact on pricing, ongoing claims management and actuarial studies. “AI will help in the identification of opportunities,” he said.
Bermuda’s place in the next phase
For Bermuda, the convergence of capital, technology and legacy expertise presents an opportunity, but Hernon does not believe the island can assume its existing position will guarantee future leadership.
He points to an approachable and pragmatic regulator, efficient decision-making and a concentrated pool of insurance talent as important advantages.
But Bermuda faces growing competition from jurisdictions including the Cayman Islands, Malta and Gibraltar. Talent will be central to remain at the head of the pack.
While Bermuda continues to attract experienced professionals from markets including South Africa, Ireland, the US and the UK, Hernon believes the challenge is both to retain them and develop more Bermudian talent. Legacy also needs to become a more attractive career proposition for people who might otherwise gravitate towards live underwriting or broking.
The same convergence reshaping the market could help: “If you are working for a live underwriter or broker, legacy is still a little unattractive. But the convergence that has started, and will continue, should bridge this gap.”
For Hernon, that convergence, combined with available capital and technological development, will define the sector’s next phase. More complex legacy portfolios will demand new solutions, while he expects greater syndication of transactions as firms look for ways to deploy expertise and capital efficiently.
Bermuda already possesses many of the ingredients required to participate – specialist companies, substantial balance sheets, regulatory infrastructure and experienced people.
The challenge is ensuring they remain there.
Read the full Bermuda:Re+ILS Annual 2026 here.
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