June 2009
Cavell Rendez-Vous:
Cavell Rendez-Vous:
(June 2010) Time to rethink APH reserving?(October 2009) Scottish Lion shock decision will be appealed, vows PwC(September 2009) Legacy industry debates ramifications of Scottish Lion ruling(August 2009) Ruxley on the hunt for APH run-off business(July 2009) Industry Matters: Solvency II The Clock Is Ticking(June 2009) Cavell Rendez-Vous: Back to reality in run-off pricing(Summer 2008) Legacy Leaders - The Norwich Rendez-Vous rountable(Spring 2008) Time to reconsider reinsurance
A shift in market dynamics is occurring from the sellers' market that saw acquisition prices pushed up as large amounts of capital chased individual transactions over the last few years, to a buyers' market where disposal of a run-off portfolio is seen as shedding a liability rather than the opportunity to harvest profits.
"I think we're in a period of transition at the moment - the sellers' market has gone, there are few real buyers remaining, and what was probably illusionary capital in the first place has now disappeared," Deloitte partner Ian Clark said.
"I've got no doubt that as more discipline comes into the market, reality will come and we will see transactions go at below NAV, which is where we should be," he added.
Clark's comments were echoed by senior industry peers, including Richard Askey of Lloyd's TSB, who highlighted the $341.3mn sale of Travelers unit Unionamerica to Enstar at the end of 2008 - a price which represented a premium to NAV after fierce competition to buy the business.
"I think the high water mark of Unionamerica has passed and the heady days of some of the leverage multiples that were achieved back then are also passed," Askey noted.
Ruxley Ventures CEO John Winter also highlighted a change in attitude towards pricing under current market conditions, commenting: "I don't think it is correct to pay more than net equity when you can buy shares in live companies on the stock market at a discount to equity."
"I don't think it is correct to pay more than net equity when you can buy shares in live companies on the stock market at a discount to equity."
John Winter, Ruxley
Download the Legacy Leaders - The Norwich Rendez-Vous Roundtable 2009
However, senior manager at Audley Gilroy Insurance Capital, Stephen Bailey, tempered the prevailing "buyers' market" rhetoric.
"For pure acquirers it is still quite a tough market at the moment. There are opportunities, but they are limited, and in a number of cases it has been very competitive and the prices have been unattractive," he noted, adding: "I do think that there will be more opportunities from portfolios rather than pure acquisitions in the near future."
The suggestion that portfolio transfers are set to take the stage ahead of full acquisitions was also given weight by Whittington Capital Management CEO Stephen Cane, who said that the market going forwards will be much changed from previous years.
"I think it will be portfolio transfers, a repositioning in the market. What's interesting to me is that those who have apparently paid over the odds have been pushed to that level by other competitors - they don't submit initial bids at very high levels, so we're all to blame in a way," he said.
The comments come during the legacy industry's largest event - the Norwich commutation Rendez-Vous - set against the backdrop of a flurry of legacy businesses that are currently being offered for sale. They include RSA's portfolio British Engine, which at the end of 2007 had £236mn in net liabilities of long-tail exposures, including UK asbestos.
And, as The Insurance Insider revealed at the beginning of this week, Bermuda-headquartered Alea Group is also understood to be looking for a deal to shed its UK arm, with the process already entering the next stage of bidding. One of the final bidders for Alea UK is believed to be expansive Bermudian run-off manager Enstar, which recently acquired Danish run-off entity Copenhagen Re for $28mn - a price understood to be a discount to NAV.
Meanwhile, Deutsche Versicherung und Rückversicherungs-AG (DARAG)'s acquisition by Augur Capital - a deal that received regulatory approval in April - also represents an approximate $9.8mn discount to NAV, and paves the way for the German alternative investor to pursue its strategy of using the discontinued insurer as a platform to acquire other legacy portfolios.