Legacy Run-Off Market Poised for Growth Amidst $1.13 Trillion in Reserves,PwC Finds
LONDON – The legacy run-off market is experiencing cautious optimism,fueled by $1.13 trillion in reserves and a surge in mergers and acquisitions (M&A) activity among property and casualty (P&C) carriers, according to a new report by professional services firm PwC UK. The findings suggest a potential increase in deal flow as companies reassess portfolios and capital allocation strategies.
The growing reserves represent liabilities from past insurance policies, and the market for transferring these liabilities - known as “legacy” or “run-off” – is attracting critically important interest from private equity (PE) firms and insurers alike. This confluence of factors is creating a favorable environment for legacy transactions,offering opportunities for companies to streamline operations,free up capital,and focus on core business lines.
according to John Turk, a partner at PwC UK, several factors beyond cyclical market conditions are driving interest in legacy deals. “There are several triggers for considering a legacy transaction including underperformance in a line of business and needing to exit,a shift in management attention,a strategy from a new owner and so on,” Turk said. He also highlighted the impact of PE ownership, noting that with typical holding periods of 3-5 years, new owners often critically evaluate portfolios to maximize returns.
PwC’s survey revealed that nearly 70% of respondents anticipate the ongoing rise in P&C M&A activity will led to greater legacy deal flow. PwC UK partners Ed Johns and Hugh Man characterized this M&A trend as a “key tailwind for legacy,” suggesting that consolidation within the insurance industry will continue to generate opportunities for run-off transactions.
The legacy market involves the transfer of insurance liabilities – often long-tail risks like asbestos and environmental claims – to specialist run-off companies. This allows insurers to reduce their exposure to these liabilities and focus on new business,while run-off specialists manage the claims process and ultimately settle the obligations. The size of the legacy market has grown substantially in recent years, driven by factors such as increased regulatory scrutiny and the desire for capital efficiency.
