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Aquiline-Armour deal furthers legacy market evolution

Aquiline's recent acquisition of Armour rounds off a year in which a number of corporations both inside and outside the legacy market made a bigger bet on run-off for the years ahead.

As this publication revealed earlier today, private equity house Aquiline has struck a deal to acquire Bermuda-based legacy manager Armour Holdings, with plans to fold the business into a newly capitalised $500mn vehicle operating under the Armour brand.

Validus, the Bermudian (re)insurer that Aquiline was lead sponsor for, is understood to be among the investors.

Legacy corporate developments

Armour has previously effectively operated as a fund manager, originating deals and managing the run-off of books it acquired using primarily third-party capital.

Under its new structure, the business will have an unrated balance sheet and will look to make deals by leveraging its own equity base and the capital accessed via its funds.

Armour is currently raising a sister fund to its 2014 effort, with an $800mn target, according to regulatory filings.

The money is being raised in conjunction with top-five insurance-linked securities fund manager Credit Suisse Asset Management.

In Aquiline, Armour also has a highly regarded investor with notable experience in the (re)insurance space. Led by former Marsh & McLennan Companies CEO Jeff Greenberg, Aquiline currently holds a majority stake in independent reinsurance broker Beach & Associates and has a dedicated $190mn InsurTech fund.

The new backing and additional capital will give Armour extra firepower in bidding for the larger run-off deals - for which legacy giants Enstar and Catalina dominate.

The legacy market is enjoying something of a moment, with a number of firms both inside and outside the space increasing their participation through various means.

For the private equity investor legacy carriers can offer double-digit returns, which are scarce at best in the live market.

This increased interest has benefited run-off acquirers, which are looking to upscale their deal-making capabilities in order to exploit an anticipated tide of legacy liabilities coming to market in the coming year.

The past 12-18 months have seen a marked increase in the number of legacy transactions, driven by increased solvency regulation and the growing tendency to use legacy services as a capital optimisation tool.

As the market fundamentals driving this trend continue, legacy deals are expected to increase in frequency and size, with transactions in the $1bn range anticipated to be more commonplace.

Other inbound investment in legacy firms includes the purchase of a majority stake in Catalina by global investment firm Apollo, which valued the legacy acquirer at just under $1bn. At the time, Catalina CEO Chris Fagan highlighted the acceleration in the development of the legacy market, which was moving faster now "than at any point over the last 15 years".

Capacity for run-off deals has increased via both launches and partnerships. Enstar led the way in December 2016 with the launch of total return reinsurer KaylaRe, which was followed by the setting up of Premia Holdings the following January.

In August last year, Chinese conglomerate Fosun also finally made its long-awaited entry into the legacy market with the launch of SunPoint, a run-off acquirer led by former Enstar executive Karl Wall.

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