Global reinsurance giant Swiss Re views legacy as a long-term business built on trusted relationships, and while positive steps have been taken to improve the resilience and perception of the market, there’s more work to do, according to Janic Schilling, Head Legacy Origination and Andreas Schäfli, Head of P&C Legacy, Swiss Re.
In an interview with Reinsurance News, Schilling and Schäfli discussed the resilience of the legacy space, headwinds and growth potential, and how players like Swiss Re can raise their profile and boost awareness of the legacy solutions they provide.
To start, the pair explained that Swiss Re views “legacy as a long-term business and part of our holistic reinsurance offering – so it’s not about just the single transaction.”
“Our goal isn’t to build a portfolio of reserves, but to help our clients manage risk, release capital, reduce operational complexity or solve specific challenges that can only be addressed through tailor-made solutions,” said Schilling.
“We do this by building trusted relationships. These relationships go beyond reserves; they’re about collaborating on complex, highly strategic projects that enable both parties to achieve their business goals,” added Schäfli.
Expanding on this, Schilling and Schäfli told Reinsurance News that while the reinsurer can offer a very broad range of standard legacy solutions to its clients, the firm typically excels in situations where a large degree of innovation or a unique feature is required, or where the lines are blurred between prospective reinsurance and legacy transactions.
“For example: combined prospective and retrospective reinsurance cover. We can fully leverage our global footprint and the breadth and depth of our capabilities – ranging from underwriting across various lines of business to managing a wide spectrum of claims,” said Schilling.
Among the challenges facing the legacy market is perception and awareness. Considering this, we questioned Schilling and Schäfli on what legacy acquirers such as Swiss Re can do to raise their profile.
“We’re both an active global reinsurer and an active legacy buyer. So, for us a legacy transaction is an important extension of the process of transferring risks through reinsurance – and that is something we do with clients on a day-to-day basis,” said Schäfli.
“At a much broader level, we work with our clients to better understand their strategies so that we can adjust our offering to them, whatever these might be. Often, clients may have a certain challenge and might not have recognized that this challenge could be solved with a legacy transaction. Often there are perceived hurdles in a “standard” legacy transaction, which create hesitance in bringing a book to market. We’ve found that the best way to overcome hesitancy is to work through the challenges on a deal-by-deal basis, listening to our clients and identifying the right tweaks and let the end result be the biggest advocate for itself,” he added.
Expanding on this, Schilling said: “In the end, it’s all about staying close to clients and designing tailor-made solutions that address their needs, independent of whether it’s a quota-share, a CAT modelling tool, a FAC certificate or a legacy transaction.
“That’s why it’s important to help stakeholders to recognize the value of the broad spectrum of legacy solutions and view a transaction as a positive step in proactively managing both past and future business. To truly showcase that long-term value, all stakeholders need peace of mind, until the very last claim has been settled.”
While improving, the perception of the legacy market, and the fact some carriers are simply unaware of the true benefits, is a challenge for the space and inhibits the legacy sector operating at its full potential.
According to Schilling and Schäfli, there are effectively two levels of hesitance that the legacy, or run-off market needs to collectively address to see more viable and high-quality opportunities come to market.
“Firstly, selling a book in run-off or purchasing reinsurance should be seen more positively by our clients’ investors. While we have come a long way in this regard, there are still markets where executing such a transaction relates to a sign of failure or a “broken promise”.
“Secondly, we need to continue to do more as a market in terms of underwriting and cost discipline,” they explained.
Within legacy, resilience of the market is often debated and notably how this is improved and why it’s so important.
In Schilling and Schäfli’s opinion, “the resilience of the run-off market is all about the resilience of our clients – either directly through their retrospective reinsurance agreements, or indirectly through the reputational impact after a book is sold.”
“We are in the business of paying claims and that is our most important obligation. The better we can demonstrate that this market lives up to this promise, the more business we will see,” they continued.
Concluding: “Each buyer needs to answer for themselves if they are doing enough, but I do see some encouraging signals with topics such as balance sheet resilience of market participants, more investments in due diligence capabilities, higher underwriting discipline and leaner operating models all being discussed more broadly and openly in the market.
“Additionally, fostering more thought leadership exchanges – like the one we recently held in Brighton – drives innovation by challenging the status quo and encouraging an open discussion about whether the market is truly doing its best to meet the broader industry’s needs.”
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