Lloyd's RITC deals to accelerate amid non-life legacy momentum: PwC

By Rebecca Delaney

Feb 12 - (The Insurer) - The fourth quarter of 2024 saw an uptick in deal activity in the non-life legacy insurance market, with PwC expecting continued momentum over 2025, particularly for reinsurance to close (RITC) transactions at Lloyd's.

• $6.6bn in estimated gross liabilities transacted across 33 deals in 2024 (2023: $8.1bn)

• Deal size trifurcation continues

• PwC expects greater Lloyd's RITC activity

• US casualty exposure may become more attractive

Q4 2024 saw the transfer of $2.4bn in estimated gross liabilities across nine publicly announced non-life insurance run-off deals, continuing an active second half of the year for the legacy insurance market.

Overall, 33 transactions were publicly announced in 2024, with an estimated $6.6bn transacted in gross liabilities.

As PwC noted, a "significant" portion (45 percent) of deal sizes remain undisclosed, with only 15 deals revealing their figures for transferred liabilities over the year. In comparison, more than half (58 percent) of acquirers disclosed their deal sizes in 2023, which saw $8.1bn of estimated gross liabilities transferred across 31 deals.

PwC said it considers it likely that total liabilities transferred in 2024 were only "marginally lower" than that in 2023.

North America again dominated deal activity, accounting for 58 percent of disclosed transactions in 2024 with 19 deals transacting $5.8bn estimated gross liabilities.

This was followed by the UK and Ireland, which accounted for $0.2bn in gross liabilities across two deals. Continental Europe was described as "relatively quiet" until Q4, which saw the announcement of two deals for an undisclosed amount of gross liabilities.

The rest of the world saw "limited but growing interest", particularly in the Asia Pacific region with $0.4bn across two deals – although activity was stymied in Q4.

The trend of deal size trifurcation continued, with deals announced at the $1bn, $100mn-$500mn and sub-$100mn marks. For example, in Q4 Enstar announced its $2.3bn loss portfolio transfer (LPT) with Axis Capital, alongside several smaller transactions with undisclosed entities in Bermuda.

LPTs were the dominant deal type in North America, with PwC acknowledging very limited uptake of insurance business transfers (IBTs). The review suggested that market participants continue to exercise caution over the IBT regulatory framework, particularly for larger transactions.

Legal finality deals (including captive disposals) accounted for more than half of all deals in 2024, with PwC indicating that this may be drive by softening market conditions in some lines, as well as broader economic pressures prompting firms to wholly divest from non-core operations and portfolios.

According to PwC, there is debate over whether reinsurance deals will remain more common, or if legal finality deals are beginning to regain traction. Currently, reinsurance deals are preferred by buyers as these are quicker and more cost-effective to execute; this preference is demonstrated in the lack of adverse development covers (ADCs) that were successfully executed in 2024.

Lloyd's RITC deals to drive 2025 activity

Legacy activity in the Lloyd's market is expected to see an increase in RITC deals over the next 12 months, with the potential announcement of some deals ahead of the Q4 2024 quarterly monitoring return reporting deadline later this month, PwC has anticipated.

Under rules which came into force on 1 January 2025, all new legacy deals require pre-transaction review and approval by Lloyd’s. This is expected to have a deferred impact later in the year, with the compliance burden falling predominantly on the acquiring entity.

Elsewhere, PwC said that market activity may be boosted by the Prudential Regulation Authority's finalised solvent exit planning rules for insurers, which are expected to come into force in 2026. According to the review, the rules underscore the legacy market’s key role in capital optimisation for (re)insurers globally.

"While some deals continue to take longer than counterparties might like, often due to expectation gaps between parties or the need for higher-quality data, we have seen some deals previously shelved resurfacing, supported by increased transparency, strengthened reserves and improved operational resilience. We may see more such deals re-emerge during the course of 2025," said the review.

PwC's legacy barometer also indicated that capital relief-driven transactions are slated to remain common as certain lines continue to see positive rate movements, with underwriters seeking to free up capital for new business.

Reserve prudence from the hard market is expected to carry over into the softening cycle, with PwC warning that buyers should understand the potential profitability in each line of business in order to reduce the risk of acquiring portfolios that may potentially resemble the deterioration of US casualty portfolios underwritten in the 2010s.

"As the cycle continues, US casualty exposure, which sellers have previously struggled to find appetite for, may become more attractive," the review concluded.

"While acquirers are still cautious, this may occur where remedial actions have been taken to strengthen reserves from the softer-market years and greater confidence is shown in the more profitable business written in the recent hard market years. We continue to see a steady supply of US casualty books testing the legacy market’s appetite, alongside “greener” portfolios and lines of business previously considered less traditional for the legacy market."