QBE brings in GC to market $300mn NA legacy portfolio

QBE is working with Guy Carpenter to find a legacy solution for a $300mn portfolio of the Australia-based carrier’s North American E&S business, The Insurer can reveal.

QBE announced plans earlier this month to explore the market for the portfolio, as it looked to continue de-risking its business at the same time as undertaking a $825mn equity raise in an effort to shield its balance sheet from any pandemic-induced economic recession.

The portfolio is understood to comprise E&S and workers’ comp business, with Guy Carpenter believed to have already undertaken exploratory conversations with a number of run-off specialists.

While the exact structure of run-off transaction QBE is seeking isn’t known, potential legacy counterparties with the scale to handle the $300mn portfolio could include the likes of Darag, Enstar, R&Q and Riverstone, or reinsurers like Berkshire Hathaway, Catalina and Munich Re who provide retroactive reinsurance capacity.

Although QBE said the move has been informed by the economic uncertainty from Covid-19, its desire to execute a legacy transaction comes at a time when (re)insurers are increasingly looking at ways of offloading back-year liabilities to free up capital, boost returns and reduce earnings volatility around prior-year reserve movement.

The use of loss portfolio transfers (LPTs) and adverse development covers (ADCs) by (re)insurers to address their non-core legacy operations have become popular options in transferring old liabilities off their books.

Meanwhile, insurance business transfers (IBTs) are also beginning to emerge as a potential restructuring option in the US as structured solutions become part of the wider legacy universe.

QBE’s move to market its North American E&S portfolio to legacy players is not the first time the carrier has sought to transfer old portfolios off its business.

The carrier has been an active player in the run-off market, with the company having utilised the sector in the past to help manage some of the older exposures within its portfolio.

Several of its moves have involved business that had previously been written by its North American operation.

Back in 2017, QBE agreed a deal with Enstar whereby the Bermudian legacy specialist agreed to reinsure a book of discontinued workers’ compensation, construction defect, and general liability business.

A year later, QBE Equator Re facilitated the loss portfolio transfer of $436mn of legacy North American reserves to a third party, understood to be a subsidiary of Bermuda’s Armour Group.

Last year, QBE transferred a $200mn employer’s compensation book to the Hong Kong branch of Swiss Re Corporate Solutions.

QBE and Guy Carpenter declined to comment.