$20B
Over the last six years, capital for legacy reinsurers has tripled from $6 billion to $20 billion.
Transferring Reserve Risk
Why are Reserve Risk Solutions Important?
Insurers’ capital adequacy and earnings are under pressure because of increased catastrophe events, a volatile investment market and significant increases in reinsurance pricing. Insurance companies can free up capital and reduce earnings volatility by transferring loss reserves. This will ultimately improve balance sheet strength and power growth opportunities.
The legacy market consists of reinsurers specializing in loss reserve transactions not directly related to the traditional reinsurance market. Over the last six years, capital for legacy reinsurers has tripled from $6 billion to $20 billion. This increased capital supply and rising interest rates make the pricing on legacy deals more attractive than ever.
How Aon Can Help
Capital advisory works with insurance clients to enhance return on capital by matching risk with capital. We optimize capital for insurance companies to achieve growth and return targets while managing stakeholder expectations across group and underlying entities. We can structure loss reserve covers to free up capital allocated to lines of business in run-off or that are no longer part of an insurer’s core business strategy.
Loss reserve covers can help insurance companies:
- Protect earnings
- Reduce volatility around reserve development
- Provide capital to support new growth opportunities
- Improve operations by separating reserve liabilities after significant underwriting and pricing changes
- Alleviate internal resources by transferring claims handling and administration to the legacy market
Reserve risk is expected to drive insurance companies’ future S&P capital requirements. Legacy reinsurance releases capital-supporting reserves by transferring uncertainty to the legacy market. Aon expects legacy capital can fuel growth to $10B.
How We Collaborate with Clients
Matching risk against available legacy capital, Aon’s Capital Advisory collaborates with insurance clients to create a nimble framework that allows for rapid reallocation of capital to profitable growth opportunities.
Aon advises insurance clients on:
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01
Designing and Optimizing Legacy Structure
Designing and optimizing legacy structure such as loss portfolio transfer or adverse development cover, terms and conditions and indicative/favorable pricing
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02
Evaluating Options
Evaluating most efficient legacy structure options via capital benefit, cost, volatility transfer, funding, and claims handling
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03
Developing Go-to-Market Strategy
Detailed go-to-market strategy, supported by data analysis, preparation and reconciliation, mock reinsurer pricing view, transaction risk assessment and recommendation of legacy markets
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04
Liasing with Legacy Markets
Interactions, Q&A and negotiations with legacy markets
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05
Communicating with Stakeholders
Communications with key stakeholders, including insurance clients, boards, rating agencies and regulators
Why Work with Us
Powered by our data and analytics capabilities, Aon is a full-service capital advisor that uses our scale to fuel innovation in deal structures.
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Global Broking Team
Broking team with colleagues dedicated to legacy placements in the U.S., UK and Bermuda
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Complex Loss Reserve Experience
Executed over 40 complex loss reserve covers involving $30 billion of reserves by a team with 100+ years of legacy experience
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Legacy Market Relationships
Long-standing relationships with all established legacy markets while supporting the development of new markets
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Challenging Placement Record
Proven track record of placing covers on challenging liabilities such as asbestos, environmental, sexual abuse, medical professional liability, D&O and construction defect
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Fully Integrated Team
Capital advisory is a fully integrated team of experienced legacy brokers, a corporate finance team, and rating agency specialists with seamless access to wider legal, actuarial and claims support across Aon’s reinsurance business
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Understanding of Accounting Guidelines
Clear understanding of accounting guidelines including GAAP, U.S. Statutory and IFRS; the impact on rating agency capital models such as S&P and AM Best’s BCAR; and regulatory frameworks including Solvency II, BSCR and U.S. risk-based capital
40+
Executed over 40 complex loss reserve covers involving $30 billion of reserves by a team with 100+ years of legacy experience
Today’s transaction provides AXIS with retroactive reinsurance cover for businesses we generally exited years ago. We acquired the protection at a cost substantially in line with our carried reserves.
