Aon: Lloyd’s just the tip of the legacy iceberg

Legacy deal volumes and values in 2021 are projected to rise above pre-Covid levels, continuing the upward trend they have been on for a number of years. 

Lloyds iceberg

The role the legacy market has been playing in the continued drive for underwriting excellence at Lloyd’s is fairly well publicised and understood, but our detailed analysis shows that this is just the tip of the iceberg – the vast majority of deals originate from a wide variety of (re)insurance groups outside of Lloyd’s and other corporates/captives. This will not be a surprise to run-off market participants nor the big-name investors that have allocated capital to the sector; as the legacy market evolves it continues to build on its reputation for problem solving to drive greater levels of capital efficiency across the market as a whole.

Globally, 30 deals have been publicly announced to date in 2021. That number is likely to be significantly higher if you include deals with legacy market participants that haven’t been publicised. Those 30 deals transferred an estimated $6.1bn of reserves to the legacy market, split across a variety of lines of business and geographies. There is continued evidence of the growing acceptance of legacy deals in North America – aided in part by developments in insurance business transfer legislation. The $6.1bn of transferred reserves is up over a third on this time last year and our current projections for the value of deals to complete by year end would see the total value exceed $11bn, with average deal values also back to pre-Covid levels of around $200mn.


Of the 30 publicly announced deals, 14 were undertaken by organisations that had not transacted with the legacy market before – attracted by the increasing levels of professionalism and sophistication of the sector. At the same time, the remaining deals were undertaken by organisations that had utilised the legacy market before (some on multiple occasions), evidencing the levels of client service the market continues to provide.

With over $1bn of reserves transferred to the legacy market in Lloyd’s this year, it is clear that Lloyd’s performance management focus continues apace. We are coming into the busiest period for legacy reinsurance-to-close transactions and expect a number of significant deals to be completed as part of the coming-into-line process for 2022. While some have suggested the impetus in the legacy market generated as a result of the Decile 10 initiative may be coming to a close, it is clear that a) Lloyd’s remains laser focused on driving out underperformance – as evidenced by chief of markets Patrick Tiernan’s comments as recently as last week; and b) that a broader base of Lloyd’s syndicates are starting to focus much more on capital optimisation.

The chart below shows that only 13 percent of deal volumes in 2021 originated from the Lloyd’s market. Over 50 percent of deals came from (re)insurance groups – predominantly in North America, the UK and Europe – and 30 percent originated from the wider corporate market, and their captive operations in particular.

Global legacy run-off deals 2021 to 13 September, by number

This latter market is yet another example of the run-off market’s continued ability to innovate. Much like (re)insurance groups looking to use the legacy market to recycle capital to take advantage of the hard market, we are seeing corporates looking to raise capital from within to invest in their core business by transferring legacy risk to the run-off market. Greater focus on capital efficiency – which is beginning to take hold in the insurance market – is also in evidence as corporates look to hone the efficiency of their risk management strategies through divestments of redundant captives and increased utilisation of retrospective reinsurance for older captive business.

In addition to the legacy market’s continued expansion into new territories and lines of business, we are also seeing an increased level of comfort among some participants in providing deal structures more common to the wider reinsurance community – for example, quota share deals where claims handling remains with the reinsured and in-the-money adverse development covers. We would expect these developments to continue as they are increasingly demanded by clients looking for capital relief but wishing to retain some degree of claims control.

The continuing evolution of the market is welcome. The increasing recognition from the wider insurance community that they could be far more effective in optimising their capital base, together with the great strides in customer focus, risk management and governance that the legacy market has made, will undoubtedly increase the supply into the market. Most legacy consolidators have received significant injections of capital in the recent past – particularly from private equity firms and pension funds – and investors in those businesses and a number of new entrants have committed substantial levels of additional capital to meet the increased supply, so we fully expect this market to continue to thrive and develop an even greater array of solutions to meet client needs.