PwC: Estimated global non-life run-off reserves rise 11% to $960bn

The global non-life run-off market continues to grow, with estimated liabilities rising 11 percent to $960bn since the beginning of 2021, according to PwC’s latest global insurance run-off survey.

PwC legacy

PwC said the growth reflects a number of factors, including the fundamental underlying increase in insurance business being transacted across the world and the knock-on effect for policies entering run-off, either through natural expiry or strategic exits as insurers discontinue non-core or unprofitable business.

It is estimated that over 50 percent of the growth since PwC’s last survey has emanated from North America.

While the past 18 months have seen high levels of deal flow for all transaction sizes, PwC noted an increasing number of transactions valued at over $300mn.

PwC said that of the 400+ publicly disclosed deals completed in the last 10 years, 150+ have been in the last three years.

It also noted it was observing an increasing number of $500mn to $1bn+ transactions, driven by strong, long-term capital being deployed and both buyers and sellers becoming more innovative when designing legacy solutions.


PwC said the deals have been driven by strong demand from insurers for capital relieving legacy solutions, supported by a plentiful supply of capital from investors, which acquirers have used to take on larger and more diverse portfolios.

While PwC estimated that insured liabilities have reached $960bn, it also highlighted material legacy liabilities held on the balance sheets of manufacturing companies and other non-insurance corporations of ~$68bn globally.

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


The report highlighted that while significant opportunities exist, the legacy sector also faces some challenges, and increased uncertainty as a result of inflation will be a factor for acquirers in valuing reserves and pricing transactions.

It warned that the highly competitive nature of the environment means that maintaining pricing discipline is critical when assessing opportunities to generate target returns.

Andrew Ward, liability restructuring partner at PwC UK, said: “As the sector has successfully demonstrated for some time now, pro-active run-off management can free up the capital tied up in legacy books and allow live insurers to focus on writing core profitable business.

“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 non-core books,” Ward continued.

“However, the run-off market itself is not immune and is likely to face similar pressure on its reserves, meaning players will need to be creative and strategic in how they operate in this environment.”


Competition and pricing trends

Of the respondents to PwC’s survey, 99 percent said the market has medium or high levels of competition, and the growing number of players and availability of capital in the market means many deals are becoming increasingly competitive.

In some instances, PwC said acquirers are being forced to show more flexibility with their pricing strategies in order to compete.

PwC noted that underwriting discipline has remained strong without the requirement of arbitrary changes to pricing and modelling assumptions to compete. PwC said it had witnessed a trend for acquirers to remain aligned to their strategic priorities but this has meant that some acquirers may have not been able to execute on the number of deals they hoped.

In addition, the report highlighted that buyers are becoming more selective at evaluating and participating in deals due to the higher volume coming to market. If processes don’t feel right, don’t deliver the strategic fit desired or match return expectations, then buyers are walking away.

Lines-of-business-expected-to-attract-the-most-interest-in-2022-according-to respondents

This has manifested itself in many deals being left on the table.

How the market reacts to this on both sides will be interesting to see, PwC 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,” Ward said.

“We are seeing greater levels of segregation and specialisation amongst the acquirers as a result and whilst competition in the $100mn to $300mn deal size range is fierce, there is plenty to keep everyone busy,” he added.

“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.”

New targets and lines of business

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

PwC highlighted that motor and financial lines make up the top five, reflecting the growing appetite for younger and shorter-tail exposures.

The report said there remains a great deal of untapped potential in the US and European markets, especially with many insurers and reinsurers currently assessing what business is core and non-core.

The market is also slowly beginning to see increasing awareness and acceptance of run-off solutions in new geographies and classes of business.

The PwC survey results pointed to North America being viewed by respondents as the most likely to see a growth in transaction activity, with 57 percent of respondents predicting a greater number of transactions in the future and a further 40 percent expecting a repeat of current volumes.

PwC said that this is in large part driven by the increasing demand for and availability of sophisticated reinsurance solutions and it will also be interesting to observe the impact on deal flow and deal type as a consequence of the evolving IBT environment – two IBTs have now been completed in Oklahoma with a number of others believed to be in progress.

Continental Europe remains relatively close behind North America in terms of forecast deal activity, but with a slightly less optimistic view.

“The run-off market continues to evolve and establish itself as part of the mainstream insurance sector,” Ward continued.

“Deal activity in the third quarter has been encouraging, with activity in all of the major markets and a number of acquirers transacting,” he added.

“We are seeing an ever more diverse range of risks reaching the run-off market, including far more recently underwritten business, and the pipeline looks strong for the foreseeable future.”