Why the size of legacy deals on Bermuda is increasing

The legacy market is seeing fewer transactions, but the size of the deals is increasing, Howden’s Shireen Gammoh (pictured right) told attendees at the Bermuda Risk Summit, taking place in Bermuda this week.

Gammoh, managing director of legacy and structured solutions for Howden Re Bermuda, speaking on a panel, said the change reflected a shift to quality over quantity, she said.

The change came against a background  of the legacy market evolving from a run-off business to a capital management business, the other members of a panel agreed.

Gammoh said legacy solutions had evolved from dealing with a closed line of business to becoming a core capital management tool.

This enabled companies to optimise performance on underperforming capital as it freed up reserves which otherwise took a long time to pay.

Gammoh said key market drivers were inflation risk, how return on equity and combined ratio were affected by prior year developments and the demand from equity analysts to reduce volatility.

She said legacy transactions enabled re/insurers to recycle capital to generate higher returns.

Babak Termeh Baf Shirazi (pictured left), chief pricing actuary at Premia, said pricing had become quite compressed due to challenges in the casualty market and there is still a gap between true reserves and what is being booked.

Structured solutions are becoming more prevalent as opposed to conventional pension risk transfers. He said companies were seeing repeat cedants freeing up capital, but the deals were becoming more structured.

Caroline Fahey, executive director of trade group AIRROC, said there were many different legacy players and no standard legacy deal.

“When you have seen one legacy deal, you have seen one legacy deal,” she joked. “There are appetites for every type of deal.”

Huw Battrick, head of mergers and acquisitions, said not all deals that were presented came to fruition.

Termeh Baf Shirazi said the drop in the number if deals was occurring because there were fewer players in the market and fewer opportunistic deals from cedants. He said people were being more thoughtful about their deals.

Bermuda is well placed to be a centre for legacy insurance, the panellists agreed.

Termeh Baf Shirazi said the Bermuda Monetary Authority had taken steps to increase its capacity to deal with runoff and was well placed because most run-off carriers were domiciled in Bermuda.

“It is really good because you are close to the regulators and it is easy to reach out to them,” he said.

Battrick agreed and noted that transactions in other jurisdictions took longer be approved because the regulators were not as familiar with the deals.

Gammoh noted that some legacy players had redomiciled to Bermuda recently.

“The BMA offers a good robust framework for legacy players and transactions,” she said.

She also said the insurance-linked securities market had become more connected to the legacy market in the last year.

In some deals, ILS vehicles were being used to take on legacy transactions.

In others, legacy insurers were able to take on trapped capital, enabling investors to get their money back while long tail risks might still be outstanding.

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