Bermuda’s reputation as a place for insurance run-off excellence grew continually in 2020, a leading executive in the Bermuda office of professional services firm PwC has said.
James Ferris, a partner and leader of the Bermuda Advisory practice, said: “The likes of Compre established its Bermuda operations in the year, along with a capital raise, and we saw Darag’s Bermuda entity established in 2020 increase its deal flow.
“We expect further establishment of Bermuda entities from run-off players into 2021 pointing to the Bermuda Monetary Authority becoming a significant regulator in respect of run-off operations globally, as well as group supervisor of significant amounts of US and UK/European liabilities.”
Mr Ferris’ comments appear in the annual Global Insurance Run-off Survey produced by PwC in conjunction with the Insurance and Reinsurance Legacy Association and the Association of Insurance and Reinsurance Run-off Companies.
The online survey was sent to a cross-section of individuals at re/insurers, legacy business acquirers, brokers, service providers and other stakeholders in the non-life legacy insurance market.
It found that the growth in legacy activity predicted in the last edition of the survey has materialised, boosted by significant investment in both new and existing legacy players. The market has maintained its momentum, with more than 100 legacy deals publicly announced since the last survey, consistent with the volume in the prior period.
Speaking of the Bermuda market, Mr Ferris added: “With this critical mass, we expect the Bermuda market stakeholders to continue developing the next generation of innovation for Bermuda to keep it at the forefront of legacy solutions. While 2020 saw a Bermuda domiciled consolidator complete its first US IBT, Bermuda has not yet developed its own framework for IBT akin to the Part VII process, something which may be required in time to support the industry.
“The year also saw Bermuda being placed on the National Association of Insurance Commissioners List of Reciprocal Jurisdictions effective 1 January 2020, which we expect to only increase the attractiveness of reinsuring into the territory and the solutions that can be developed.
“We may see strong demand for Bermuda specific legacy solutions in the coming years as the 2021 renewal season suggests pricing of new contracts is hardening, which will put those reinsurers with capital intensive legacy business in the spotlight. To maximise investor returns, established insurers should be looking at ways to effectively pass legacy liabilities into the run-off market and recycle the capital into more profitable underwriting.”
Damian Cooper, insurance partner at PwC Bermuda, said: “The non-life run-off market has shown tremendous resilience in the face of Covid-19. The strong deal activity has been boosted by some significant investments in both new and existing players. Over the next few years market conditions look conducive to further growth, which is strongly supported by this year’s survey responses.”
PWC said survey respondents predict legacy deal activity will remain at record highs, with the US and Lloyd’s markets continuing to be particularly busy. Respondents further indicate that they expect the sector to be heavily influenced by factors such as increased levels of capital availability and hardening live market conditions, which will ensure a strong supply pipeline over the next two years.
PwC said key survey findings include:
• The majority of survey respondents believe the global legacy market is growing.
• Key restructuring drivers remain consistent with the deal flow that has been observed in the market over the past two years.
•Releasing capital continues to be the primary driver of run-off activity, followed closely by disposing of non-core business and achieving early finality.
• Ninety-three per cent of respondents believe new capital will continue to be made available to legacy market players in the current hardening market.
• Seventy-nine per cent of respondents foresee consolidators pricing legacy deals at internal rates of return of between 10 and 20 per cent.
PwC estimates that the global non-life run-off reserve has increased to $864 billion, which is a nine per cent increase since the previous edition of the survey.
The North America region continues to dominate, with reserves of $402 billion, while the United Kingdom and Continental Europe markets have a combined reserve of $302 billion.
Run-off liabilities in other key territories, including Asia, the Middle East and South America, have combined liabilities of $160 billion.
Jim Bichard, global insurance leader at PwC UK, said: “The legacy market has never been as active as it has since our last survey, both from a deals perspective but also from a legacy management perspective within groups.”
He added: “More of our professionals than ever are involved in providing insights and services to the market and we can only see this continuing to expand as the market evolves and develops.”