Although higher interest rates and more favorable mortality trends have led to improved conditions for life/annuity reinsurance companies, it also has created more competition, with some backed by alternative investment managers or large private equity firms, according to a new AM Best report.

The Best’s Market Segment Report, “Life/Annuity Reinsurers Face Growing Competition as Conditions Improve,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Other reports, including AM Best’s ranking of top global reinsurance groups and in-depth looks at the insurance-linked securities, Lloyd’s, health and regional reinsurance markets, will be available during August and September.

This new report states that new capital continues to flow into the segment, primarily via reinsurers owned by investment managers focused on annuity business. These newer entrants have sought to coinsure assets that can be rolled into high-yielding positions, mainly in public, private or alternative fixed income products. These reinsurers also can offer attractive ceding commissions based on higher anticipated investment returns once the transferred assets are rolled into a wider set of investment opportunities.

Overall, L/A reinsurers are well-capitalized and their risk-adjusted capitalization is expected to remain healthy through 2025, despite risks that remain in investment portfolios and elevated mortality for some. Reinsurers owned by asset managers are more comfortable taking on investment risks utilizing investment experience from their parent companies in structured products, mortgages, private credit or other alternatives.

“How newer entrants will alter their strategies over the long term depending on macroeconomic trends, availability of deals and regulatory changes remains to be seen, but by all indications, this ‘new capital’ is here to stay, with billions more committed but on the sidelines waiting for the next opportunity,” said Ed Kohlberg, director, AM Best.

Historically, the U.S. life reinsurance market had been pressured as primary insurers transferred less risk to third-party reinsurers, which led to a long decline in cession rates. More recently, rising interest rates led to robust annuity sales, which has motivated some primary carriers to reinsure incremental business. While annuities are a very capital-intensive product, asset managers have thus far supported rapid growth by providing the needed capital and not constraining growth with material dividends. Bermuda, and to a lesser extent, the Cayman Islands, have gained popularity based on the stable economic environment and regulatory landscape, as well as political stability and access to legal and financial talent. They also have flexible accounting regimes and can choose which accounting system works best.

“The notable annuity growth is likely to continue, and more companies may look to reinsurers to manage growth and capital levels. With new company formations, partnerships and private capital entering the market, the reinsurance market remains competitive with a larger share of business ceded to affiliates and third-party reinsurers,” said Stratos Laskarides, senior financial analyst, AM Best.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=346031.

A video discussion of this report with AM Best Senior Financial Analyst Stephen Vincent also is available at http://www.ambest.com/v.asp?v=ambglobalrelife824.

For future global reinsurance reports ahead of Rendez-Vous de Septembre, please visit Best’s Research.

Lastly, AM Best will host its annual reinsurance market briefing at Rendez-Vous de Septembre on Sept. 8, 2024, at 10:15 a.m. (CEST) in Monte Carlo. For more information, please visit http://www3.ambest.com/rd/rd.aspx?rd=RVDS2024.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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