Welcome to the fourteenth edition of PwC’s Global Insurance Run-off Survey, which has been produced in conjunction with the Insurance & Reinsurance Legacy Association (“IRLA”) and the Association of Insurance and Reinsurance Run-Off Companies (“AIRROC”). The continued growth in legacy activity predicted in the last edition of this Survey has materialised, boosted by new market entrants and significant investment in both new and existing legacy players. The market has maintained momentum with over 150 legacy deals publicly announced over the last three years. We would like to thank everyone who responded to our Survey. Learn more about some of our key findings below.
Market size
Overall, we estimate that global non-life run-off reserves have increased from approximately US$864bn to US$960bn, representing an 11% increase since the previous edition of our Survey. While the North America region continues to dominate the global non-life run-off market with reserves of US$464bn and almost 15% growth since the last survey, the UK and Continental Europe markets have a combined reserve of US$319bn, up from US$302bn. Our estimates of the reserves in other key territories, including Asia, the Middle East and South America, have also increased to US$177bn. The global growth in estimated run-off reserves is reflective of a number of factors including the fundamental underlying growth in insurance business being transacted around the world, with the consequential knock on effect for policies entering run-off and inflation also playing its part.
Deal activity
Survey respondents predict that legacy deal activity will remain buoyant. 97% of respondents estimate similar or greater levels of deal activity in North America and the rest of the world in the next two years. Respondents further indicated that they expect the sector's biggest areas of opportunity to feature Lloyd’s legacy deals and disposals of non-core business lines following M&A activity in the live insurance market.
Rates of return
The vast majority of Survey respondents believe that legacy acquirers are pricing legacy deals at target internal rates of return (“IRRs”) of between 10% and 17%, with the majority of respondents selecting figures in the 10% to 13% range. Whilst we note that different market players will make vastly different assumptions when pricing deals, the expectation that most acquirers are targeting returns around the low to mid-teens mark is consistent with recent market history.
Areas for growth
Innovation in deal structuring is becoming more prevalent in the non-life run-off market with a wider range of transaction structures being used year on year. Whilst the use of different structures is expected to continue and grow, the majority of Survey respondents expect reinsurance structures such as adverse development covers ("ADCs") and loss portfolio transfers ("LPTs") to dominate in the next 2 years, with Lloyd’s Reinsurance to Close (“RITC”) deals and US insurance business transfers (“IBTs”) also expected to feature.
Common operational challenges
84% of Survey respondents chose data & systems integration / adequacy as a common operational challenge they face when working in the non-life run-off market, with data cleansing and operating model integration / transformation not far behind, reflecting the technological challenges the market is keen to address.
"The momentum we’ve seen over the past three years shows no sign of subsiding. The ongoing professionalisation of the sector, supported by strongly capitalised buyers will see the sector thrive as long as pricing discipline is maintained. Overall the future is bright and we should expect to see deal numbers rise and the size of deals grow.”
Contact us
Rebecca Wilkinson
Corporate Liability Restructuring, PwC United Kingdom
Tel: +44 (0)7808 030283
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