13 April 2023ArticleLife

Competition heats up in legacy market as opportunities abound

The company is exploring ways to capitalise on the potential of its legacy business by dividing its Accredited and legacy insurance operations and is taking a hard look at its strategies to determine the best course of action that would place it in a better position to succeed.

Andy Pinkes, global CEO of legacy insurance at R&Q, spoke to Bermuda: Re+ILS sister publication Intelligent Insurer on the heels of its acquisition of MSA Safety (MSA), part of a deal secured with a newly formed joint venture, as well as the ongoing transition of its operating model to a fee-based business.

The MSA deal opens up access to a pipeline of new market opportunities, the insurer said, while changes to its operating model mean R&Q will earn fees for managing legacy reserves and assets.

The broader operational changes go some way to explaining the thinking behind the major legacy liabilities deal that R&Q and its joint venture partner, investment fund Obra Capital, signed with MSA in January this year.

The joint venture partners acquired a subsidiary of MSA, a global safety equipment manufacturer, with liabilities relating to coal dust, asbestos, silica, and other exposures. MSA contributed around $341 million in cash to the subsidiary, in addition to related insurance assets, and the joint venture contributed $35 million.

Emerging opportunity

For MSA, the deal has removed all legacy cumulative-trauma product-liability reserves, related insurance assets, and associated deferred tax assets of the divested subsidiary from its balance sheet. R&Q will now provide claims and management services for the subsidiary and Obra will provide investment management services.

For Pinkes, the acquisition promises the R&Q/Obra venture “access to a new and emerging area of opportunity”.

The idea is that through its management of MSA’s non-insurance corporate liability exposures and insurance assets, the joint venture can showcase its capabilities and innovation. This, in turn, will give it greater access to the new channel of business solutions for corporate, rather than insurance, balance sheets, Pinkes explained.

“MSA is a single company deal, but we are now well positioned, having pulled these capabilities together, created the structure within our capabilities with Obra and leveraged that, to be able to take advantage of these opportunities in the market going forward,” he said.

As the insurer moves to a fee-based business around its traditional insurance and captive businesses, Pinkes said that its pursuit of non-insurance corporate liabilities “fits perfectly” into this transition strategy.

“We’re very focused on fee-based business. Corporate legacy transactions fit squarely into that model as they leverage our legacy platform or skills to generate fee income for managing liabilities,” he said.

“There is strong future demand for corporate legacy deals such as MSA and a lot of focus on this space. The investment banking and insurance brokerage communities are paying close attention to offering these solutions to their customers.

“R&Q and Obra are excited to be on the front end of that and to continue to leverage the strengths for future deals as two very important service providers.”

Competition for deals

R&Q has been working to expand its legacy fortunes for some time.

In September 2021, R&Q launched Gibson Re, a dedicated legacy sidecar, and the insurer has been deploying that capital since then.

“We’re one of two legacy providers with a dedicated sidecar. Legacy sidecar investors are very sophisticated institutional investors looking for non-correlated, non-cat-exposed pools of risk,” Pinkes said.

“For that reason we view our sidecar, candidly, as a strong endorsement of us, our underwriting, our claims acumen and track record of execution for the many years that R&Q has been in this business.”

When the MSA deal was announced, William Spiegel, R&Q’s executive chairman, said it would boost the insurer’s reserves and non-insurance liabilities under management to more than $1 billion, made up of two pools: traditional insurance reserves via Gibson Re, and non-insurance legacy liabilities.

Spiegel was clear that the deal helped with “furthering our goal of becoming a manager of legacy liabilities”.

Pinkes said the insurer is “feeling very good” about business in 2023 and that as well as the MSA corporate legacy deal, the company is on the verge of signing another deal, creating a strong business pipeline.

He reiterated that there’s “a lot of opportunity” in the legacy market. “You can see that from a number of new entrants and additional capacity coming to the market,” he added. “That said, there is significant competition for deals. We’re very focused on being disciplined in ensuring long-term profitability in this kind of market.

“Overall, we’re very optimistic about the future of the business in the legacy insurance space.”