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The Insurer in Full: Lloyd’s legacy boom

Last week, this publication revealed that both Apollo Syndicate 1969 and Vibe 5678 were exploring the run-off market for legacy solutions...

The syndicate’s motivations for seeking legacy solutions are different, with Apollo understood to be looking to free up capital to support growth ambitions at Lloyd’s, while 5678 – which entered into run-off at the end of last year – is exploring an exit solution for its capital providers.

 

The pair aren’t alone at Lloyd’s in actively looking to the legacy market for a back-year deal, adding to the growing roster of live Lloyd’s legacy processes currently in the market, with others known to include Argo, Canopius, Neon and RenRe (see table). 

Active legacy deals in Lloyd’s market

Lloyd’s has been the subject of heightened legacy deal activity as a number of retrenching or shutdown syndicates in the post-Decile 10 environment look for full or partial run-off solutions.

The uptick in demand for legacy transactions has also been driven in part by the Covid-19 pandemic, as (re)insurers increasingly look to restructure their portfolios to either put under-performing units into run-off or release solvency capital via back-year transactions.

The fallout from Covid-19 losses – compounded by the expectation of a cash call from the Corporation’s CFO Burkhard Keese today – is also expected to spur further activity at One Lime Street as insurers look to free up capital via back-year deals.

Upsizing

A notable trend at Lloyd’s has been that the size of some of the portfolios being marketed to the legacy market are significantly larger than in the past. 

As a result, run-off counterparties have been beefing up in an effort to be able to take on portfolios with larger reserves.

 London-listed legacy acquisitions and program management firm Randall and Quilter (R&Q) accelerated plans to add firepower to its run-off arm with third-party managed funds.

Recent investments and capital committed to run-off platforms

The firm raised $100mn in fresh equity in April, highlighting it expected the Covid-19 crisis to create “considerable future opportunity”. Backing the issue was existing shareholder 777 Partners, a Miami based fund, with a further $80mn investment. Hudson Structured Capital Management Ltd (HSCM), the Bermuda ILS fund manager led by former Goldman Sachs executive Mike Millette, made a $20mn participation.

HSCM has been an active investor in the legacy sector, having also invested in PE owned run-off acquisition firm Compre. 

As first reported by this publication, HSCM took a £23.2mn stake in the Will Bridger-led business earlier this year.

However, Lloyd’s insistence that RITC transactions are retained internally restricts the ability of legacy providers to provide solutions without a Lime Street platform.

For Compre – which does not possess a Lloyd’s platform – CEO Bridger told this publication in June he expected fresh opportunities to gain entry to Lloyd’s emerging as syndicates look to reposition capital ahead of having their 2021 business plans approved.

However, competition amongst those wanting to gain a foothold at Lloyd’s is hotting up.

As revealed by this publication last week, Simon Minshall-led legacy start-up Marco Capital Holdings is already active in a number of live Lloyd’s legacy sale processes as it is poised to enter the run-off market with circa Eur500mn ($590mn) private equity backing from Oaktree Capital.

 

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