What better way to start off the AIRROC Summer Meeting than hearing about the 2024 PwC Global Insurance Run-off Survey results. The survey was released in March (http://www.airrocupdate.org/wp-content/uploads/2024/04/Global-Insurance-Survey-2024-FINAL-8-4-2024.pdf) and for the first time, the global market has exceeded ONE TRILLION DOLLARS in reserves!
Andy Ward, a partner with the PwC UK Deals Team, and Keith Palmer, a partner in the Actuarial Services sector of PwC, kept our attention as they explain the elements not only adding up to that one trillion figure but also took out their crystal ball and offered some predictions about the future. They shared a great word cloud with words describing the market as active, evolving, competitive, challenging, growing, buoyant, flux, variable and you get the idea. Some of the other key takeaways include the following:
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- PwC estimates that total global non-life run-off reserves now exceed $1trillion for the first time. While not all of this number will be transactable, even a modest fraction of it represents a significant opportunity for the legacy sector.
- Legacy deal activity has slowed from the record numbers of publicly announced deals seen in 2021-2022. Ironically, while approximately 50 deals declined to about 27 and then 13, these deals saw the same total level of liabilities transacted pointing to more larger deals. Thus far in 2024, eight (8) deals have been announced and so the market does not look to be returning to the earlier volumes quite yet. The survey expects North America to be more active over the next couple of years and that market has seen the bulk of the activity to date in 2024.
- Consolidators seem to be more selective and are waiting for the right deal and/or are performing more due diligence. This focus on maintaining pricing discipline has resulted in a number of deals being left on the table with some deals that were not transacted over the last couple of years now being re-presented.
- Social inflation is exacerbating casualty reserve deterioration and loss costs, particularly for the soft market years 2016-2019. Responding to re-underwriting of liability books, significant rate strengthening, and recording of more conservative initial loss ratios, the potential reserve redundancy in more recent years may provide interesting opportunities for the legacy market in the second half of 2024 particularly for Workers’ Comp and Casualty.
- Capital relief and strategic restructuring are being cited as key transaction drivers. Increased deal activity in the live market is expected to generate opportunities for legacy through carve-outs of specific portfolios or certain subsidiaries being exited alongside the main deal.
Thus, as one can see, legacy still has a critical role in the insurance lifecycle despite some setbacks. “While the legacy sector has experienced a few bumps in the road over the last 18 months,” commented Andy, “run-off players continue to be a key element in the insurance lifecycle…. There remains a steady flow of deal supply and transactions continue to be done. The opportunity and market conditions remain strong for legacy deal activity, and it is encouraging to see pricing discipline being maintained amongst acquirers.” The “crystal ball” so to speak says that after a period of rapid expansion, the legacy sector is undergoing a reset. A couple of failures in recent years have given the market a reality check but the opportunity remains significant as insurers focus on capital relief, expense reduction and legacy clean up.
