Dear friends,
In May, key players in the legacy market prised themselves from their desks in London, the US and across mainland Europe and headed to the rain-battered promenades of Brighton for the annual IRLA Congress.
But within the faded grandeur of the Brighton Grand, the picture wasn't so gloomy. The buzzword was "legacy-to-live" and at The Insurance Insider roundtable it was the first topic on the agenda, asking whether firms needed to go live to survive.
The run-off industry is in a state of flux. The number of books up for grabs seems to be dwindling and, due to new regulation being imposed by the Prudential Regulation Authority, the value that can be extracted from those books is expected to follow a downward trend to boot.
Two distinct schools of thought are forming as legacy players race to defend themselves against what could be a turning tide in the run-off market.
One camp is moving to straddle the gap between writing legacy and live business. This has the advantage of giving run-off firms access to new opportunities and books of business that they would not be able to write without the live underwriting capability.
However, there is a significant downside, as Enstar found to its peril when it bought two live underwriting platforms last year.
The ink was barely dry on its contract to acquire Lloyd's platform Atrium in June when well-respected carrier Ace dropped the underwriter from its reinsurance security list.
This highlights the often-overlooked fact that when a live player commutes its book to a legacy company it's not just its liabilities that are being outsourced, it's the live carrier's reputation as well.
Sources told The Insurance Insider that past disputes over claims handling had given rise to a fractious relationship between Ace and Enstar.
The second school of thought puts the emphasis entirely on reputation. It recognises the fact that live underwriters take a real reputational risk when they farm out their liabilities to run-off firms.
The executives of these firms know that long-term reputation is worth more to a live firm than an extra nought on the paycheque offered for a legacy book.
Playing with electricity can be dangerous and legacy-to-live players risk getting a shock if they don't expect their years in the run-off market to come back to bite them.
But as with the tortoise and the hare, slow and steady wins the race. By focusing on paying claims and managing capital, pure run-off players can sell themselves on quality and not diversity, which will offer a solid foundation for a platform in the live market.
Enjoy the read.
Dan Ascher
Reporter
The Insurance Insider
To view the IRLA Roundtable 2014 please click here.