Growth in global insurance, and the subsequent naturally occurring expiry or capital exit are reasons for an increase in the global non-life run-off market.

Estimated liabilities rose 11 per cent to $960bn since the beginning of 2021, according to PwC’s latest Global Insurance Run-off Survey.

PwC estimated that over half the growth since the last survey has come from North America, as acquirers use an abundant stream of capital to satisfy the strong insurer demand for legacy solutions.

The past 18 months have seen high levels of deal flow including more transactions valued at more than $300m.

Joseph Gordon, director, advisory, PwC Bermuda, said: “Established players are using their Bermuda reinsurance carriers to undertake a number of significant transactions.

“This has been in part driven by insurers and reinsurers seeking to use run-off solutions to manage risk, free up capital and improve returns.

“As a leading domicile for non-life run-off insurance and legacy solutions, the island remains attractive as a hub for run-off acquirers with ready-made infrastructure and resources complemented by a regulatory environment that has a track record in supporting the sector.

“We expect further establishment of Bermuda entities from run-off players in, and beyond, 2022 with the Bermuda Monetary Authority continuing to set the standard for regulation in respect of run-off operations, and Bermuda run-off reinsurers continuing to set the pace with run-off transactions that are both innovative from a structuring perspective and of a scale that the market has not seen before.”

With the strong pipeline of legacy deals for the foreseeable future, PwC also estimates that there are $68bn in material legacy liabilities on the balance sheets of manufacturing companies and other non-insurance corporations.

Established run-off acquirers and new bespoke entrants are increasingly targeting this sector as corporations look to gain finality for long running asbestos and environmental exposures that continue to be a drag on financial performance.

But challenges are factors such as inflation for acquirers in valuing reserves and pricing transactions.

Pricing discipline is critical when assessing opportunities to generate target returns.

Andrew Ward, liability restructuring partner, PwC UK, commented: “We see further opportunities for run-off acquirers as insurers assess portfolios in line with strategic objectives and the ongoing inflationary environment may be a catalyst for more activity as insurers look to alleviate capital pressures associated with retaining noncore books.”

Almost all (99 per cent) of respondents to PwC’s survey saw growing competition requiring flexibility with pricing strategies.

They say acquirers are pricing legacy deals at target unleveraged internal rates of return of between 10 per cent and 17 per cent.

This continues to represent an attractive outcome and is likely to lead to further investment in the sector.

Mr Ward said: “The market is seeing an unprecedented number of opportunities across all segments from very large loss portfolio transfers to small captive sales and increasingly, corporate liability deals.”

He said there are greater levels of segregation and specialisation among the acquirers, fierce competition in the $100m to $300m deal size range and plenty for everyone.

After three years, the momentum is not subsiding, and deal numbers and their size should grow.

Survey respondents selected general liability, property and casualty, and workers’ compensation as the lines of business most likely to attract interest in 2022.

Motor and financial lines make up the top five, reflecting the growing appetite for younger and shorter tail exposures.

And while there is much untapped potential in the US and European markets, there is an increasing awareness and acceptance of run-off solutions in new geographies and new classes of business.