Dear Friend
Downbeat commentators bemoan the demise of the legacy ecosystem, citing diminishing numbers of serious legacy buyers in the market - and of actual books left to buy.
And with excess capital on the hunt for return and investment yields at unprecedented lows, industry soothsayers suggest that smaller legacy fry could be facing extinction.
A leaner Lloyd's with fewer syndicates and more corporate money than Names capital has cleaned up its act and shrunk its number of open years from over a hundred to just eight in the past decade.
Outside of Lloyd's, insurers are also looking better equipped to tackle their legacy issues on their own, with increasingly vast sums of premium income on hand and structural changes to reinsurance buying.
But it is not yet time to put legacy on the endangered list. Those who select the best evolutionary model can, and will, survive.
While the 2012 dream of a European bonanza fell rather flat, the upbeat players have renewed their focus on US opportunities. And while Solvency II benefits have failed to materialise, a large portion of the market still expects to reap rewards in the medium to long term.
Still other legacy players are expanding their horizons and hunting for buy-to-kill opportunities. As revealed in our 2013 Legacy Barometer, a large swathe of opinion makers expects this to be the future path of legacy, as the shortage of "naturally-occurring legacy opportunities" continues.
Finally there are those legacy beasts looking inward for change, with more run-off specialists branching out into the services and the live market. They argue it leverages expertise and helps smooth out results while purists contend that the omnivorous approach reeks of desperation.
Then there is the question of adequate size and capital backing. With a splintering of strategies, are certain sources of capital and entity size more appropriate to each approach?
The market is evenly split on whether capital should come from private equity, large (re)insurers or though public offering but as one commentator pointed out, this decision should depend on the target portfolio or where on the food chain a legacy player wants to be placed.
Be private for speed and public for digesting the large takeovers, the market seems to suggest.
Despite the doomsayers, there are strong drivers for a fertile run-off environment. And this is not merely limited to the spillover from the financial and sovereign debt crisis.
The market also expects to see more opportunities flow from the current soft market as well as from reinsurers wising up to capital efficiency and steering away from tricky long-tail exposure. But other factors such as M&A and low investment yields will all help spur more non-core asset sales.
There are multiple survival strategies evolving and only time will tell which will triumph.
Enjoy the read!
Please click here to view the 2013 Legacy Barometer.