AIRROC kicked off its 2025 Legacy Transactions & Networking Forum and 20th Anniversary celebration with keynote speaker Brian Snover, Senior Vice President and General Counsel of Berkshire Hathaway. Many may recall that Brian was the 2007 AIRROC Person of the Year and as he quipped during his opening remarks, this is his return to the scene of the crime. He explained his initial skepticism of the organization when Trish Getty contacted him some 20 years ago to discuss the plans for AIRROC but acknowledged his error. Brian commended all those who have been in a leadership position over the years for AIRROC’s success. AIRROC has remained true to its mission, providing a platform for discussion, networking and education about issues arising from what has matured into a vital aspect of the insurance industry. A video replay of this presentation is available on the AIRROC On Demand platform.
Here are the top takeaways from Brian Snover’s observations and presentation.
Capital Markets have established their presence but critical discernment is warranted. The capital market interest and engagement in the run-off space should not be viewed as a hallmark of legitimacy. This influx of corporate capital is on both sides of the trade and the dynamic is compelling. The appetite to assume liabilities and cultivate assets under management conflicts with litigation funders who seek to diminish assets as quickly as possible. Great success on one side is going to mean setbacks for the other.
It would be expected that over capitalization of the market would put substantial pressure on pricing, leaving those with more disciplined pricing standards on the sidelines. However, the prevalent aspects of social inflation and escalating costs have led to greater awareness of these variable costs in a legacy transaction. Interested capital has resulted in investment bankers and intermediaries becoming more active in the space bringing with them more ways to slice and dice information in more impressive ways. However, the use of more analytics, models and comparable trade data is something experienced legacy professionals have seen before. Data analytics can just as easily be used to kill or make a market as well as be manipulated to support any position. Add to this that the investment bankers will be extracting a hefty fee that has to come from the same risk capital funding the trade; it is easy to appreciate the downside of this development.
Legal Environment Challenges. The legacy market is facing challenges from organically emerging mass torts and man-made or really lawyer-made initiatives, whose goal is to more efficiently mine the old years of insurance coverage to benefit the plaintiffs’ bar. The organically emerging mass torts include exposures such as talc and PFAS. Back when AIRROC was founded, asbestos was the driver of so many of the legacy transactions being negotiated. Many did not anticipate talc becoming a rival source of activity.
Changes in law are also contributing to the proliferation of claims activity from long closed underwriting years. Most significantly are the reviver statues enacted around the county that has reestablished the viability of timed barred molestation claims. The reviver statutes have resulted in an explosion of claims activity that could not have been anticipated 20 years ago.
Losing the Illusion of Finality. Another area of possible disruption or opportunity for the legacy market is the cautionary tail of a buyer of a “clean shell” that comes to the horrifying realization that they are now responsible for the legacy liabilities of an insolvent reinsurer. The story involves a quite common transaction in which a company acquires another company and reinsures its obligations 100%. Sometime later, the acquiring reinsurer sells the acquired company as a “clean shell,” a licensed company without assets or liabilities. There have been several instances where the buyer of the “clean shell” many years later discovers that it has unwittingly purchased an insurer that had ceded all of its liabilities to a reinsurer that is now insolvent. Rather than a “clean shell” they now own a company full of legacy liabilities, scrambling to understand the extent and nature of the claims and set reserves without any loss history or knowledgeable staff. In two recent court cases, the owners of the “clean shells” resisted the legacy claims asserting an implied novation, which not surprisingly was rejected. Adverse development from legacy mass tort led to the unwinding of the plans designed to deliver finality. Prevalent aspects of the US tort system plus the added impact of social inflation will continue to manifest in losses that hit the older years as well as the current years, resulting in the same or similar negative consequences.
Advancements in Artificial Intelligence may be Transformational. The applications of advanced AI tools could significantly influence the legacy market from claims handling, to reserve analysis to diligence exercises. The bottom line is that AI has the capability of performing much more efficiently the essential functions of the legacy market. Evaluating the past to project the future and trying to get a fair price for that view of the future in a competitive market, whether its buyer or seller. There is more than enough capital looking to be deployed on both the asset and liability side. The proliferation of social inflation and a legal environment that appears poised to continue to beat the mass tort machine will continue to contribute to the ever-increasing claims costs. There is great anticipation that AI could make all of these elements interact in more efficient ways.
In summing up his presentation, Brian Snover lamented that AIRROC’s existence is more important in today’s environment in light of the myriad of challenges facing the legacy industry.
