Legacy pipeline “incredibly strong” as run-off recognised as capital management tool

The pipeline of run-off transactions remains “incredibly strong” as carriers increasingly recognise legacy deals as an “effective capital management tool”, according to Aon Reinsurance Solutions’ head of capital advisory Kelly Superczynski.

Speaking to The Insurer TV, Superczynski said there was “a lot of appetite” from both buyers and sellers in the legacy space with simultaneous growth in supply and demand for reserve transactions.

She explained that this was driven by the recognition that legacy is an effective capital management tool, with the “stigma” that has previously been associated with the sector having now been removed.

“There’s no longer the stigma – if I do an adverse development cover, it doesn’t imply that my reserves are inadequate,” Superczynski explained.

Superczynski said that carriers now explore legacy transactions as they recognise that reserves associated with certain portfolios can act as a drag on capital requirements.

“Companies are required to hold a ton of capital for a book of business that’s in run-off,” she explained.

“And so to be able to free up that capital in order to be able to give those liabilities to somebody who’s willing to buy them, it’s really impactful on a company’s capital adequacy position, and enables the company to hopefully be able to take that capital that’s freed up and be able to invest in ongoing opportunities,” Superczynski said.

She also highlighted the growth in the number of legacy counterparties that carriers can transact with, fuelled by fresh capital entering the sector.

As this publication has tracked, there has been a wave of investment from private equity houses in recent years as run-off specialists look to scale up in response to the increase in appetite for legacy solutions among P&C players.

“There’s so much capital coming into the space,” Superczynski said.

She referenced a recent Aon study which found capital supporting dedicated legacy specialist businesses has exceeded $21bn in 2022, up from ~$6bn in 2016.

“So you can just see the amount of capital coming into the legacy space.”

In addition to the surge in number – and size – of run-off counterparties able to structure legacy deals, Superczynski noted that the portfolios coming to market are also evolving.

“We’re starting to see companies and investors really diversify and look at different portfolios that haven’t been historically done.”

In this 10-minute interview, Superczynski discusses the following topics: