In addition, a group of private investors acquired Talcott Resolution,
The Hartford’s run-off L/A businesses, in May 2018 for approximately
$2 billion. After closing on the deal, the company reinsured
approximately $9 billion of its fixed annuity, payout annuity and
structured settlement business to a subsidiary of Global Atlantic
Financial Group. As a result, the remaining liabilities are primarily
Barriers to entry into the US life reinsurance market are significant,
which helps to solidify the market positions of well-established players.
Relationships built over the years offer a competitive advantage that
new entrants simply do not have. Additionally, reinsurers often are
viewed as partners offering underwriting, facultative and other support.
That is not to say that new entrants are non-existent. Despite a highly
mature market, cedants continually explore ways to better manage
earnings volatility, capital and counterparty diversification.
The common theme for new launches is the ability to provide
counterparty diversification, as well as tailored solutions and capacity
to clients in need of capital relief for businesses, such as annuities and
new business strain from increasing life insurance sales. In addition,
some entrants backed by private equity or other investor groups are
often more focused on interest-sensitive business lines such as annuities.
Such companies are often backed by investment managers who
have expertise in certain asset classes and have bigger risk appetites.
Their business models are predicated on offering attractive prices to
buy annuity businesses that may be underperforming or providing an
avenue to lay off some risk in light of a potential turn in the credit cycle.
Cedants, however, may not be comfortable with more aggressive
investment strategies because, in the event of insolvency, the business
and the assets supporting that business may revert back to the cedant.
When companies do business with unrated carriers, AM Best ensures
that certain protections and asset allocation strategies are in place to
safeguard the company in case of insolvency that might cause the
business to revert back to the cedant.
Kuvare Holdings, headquartered in Chicago, is an example of a
private equity-backed new entrant that operates in both the primary
insurance and the reinsurance businesses, with a middle market focus.
obligations (pension buyout business) outside North America. This
was most recently demonstrated by Canada Life Re’s announcement
on March 6, 2019 that it entered a CAD 5.5 billion long-term longevity
risk reinsurance arrangement with Dutch firm SRLEV NV (VIVAT),
covering 70 percent of CAD 8 billion in-force liabilities.
Pension business and other interest-sensitive lines are benefiting from
a favourable economic environment with generally rising interest rates
and a benign credit environment.
Market dynamics that may affect direct L/A players negatively include
the low interest rate environment, despite an uptick over the past year,
and the potential for rising impairments when and if the credit cycle
turns. Although lower rates affect all companies and dampen earnings,
life reinsurers in general are somewhat less reliant on investment income
to achieve return targets. Reinsurers take more risk on the liability side
of the balance sheet and thus tend to accept less investment risk.
In addition to more conservative investment portfolios through higher
allocations to bonds, the credit quality of reinsurers’ bond portfolios
is also of higher quality, with larger allocations to NAIC-1 bonds and
fewer rated below investment-grade.
Imbalances from asymmetric monetary policy among the US,
eurozone and emerging economies, as well as trade disputes, also have
negatively affected the overall market.
While the mortality rate improvement has slowed recently across
several advanced nations, some life reinsurance companies believe it is
too early to determine if this a short-term slowdown or a permanent
shift in mortality.
Block acquisition appetite has afforded direct writers with legacy
books or trapped capital a means to sell or reinsure such blocks. This
allows direct writers to deploy capital to higher margin businesses. In
2018, a number of sizable block acquisitions have either closed or been
announced, including a major deal between Symetra and Resolution Re
for the assumption of a legacy block of structured settlements.
Figure 1: Reinsurance ceded 2009–2018
Face amount cecded ($ trillions)
Reinsurance amount ceded ($ billions)
Face amount ceded
Source: AM Best data and research
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
“There is ample business opportunity
in the US and internationally in
the longevity space, as well as other
financial solutions business.”