Guy Carpenter reported that as of December 31, 2023, private equity-backed reinsurance transactions in Asia, representing $25 billion in assets, accounted for just 2% of the addressable market. But the value of these deals increased tenfold between 2019 and 2023.

Key transactions included insurers such as AXA HK, Manulife, FWD, T&D, Daiichi and Japan Post with private equity-backed reinsurers including KKR-backed Global Atlantic, Apollo-backed Athene, Blackstone-backed Resolution, and Blackstone-backed Fortitude. Carlyle, and Reinsurance Group of America (RGA).

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According to the reinsurance broker’s report, the influx of private equity funds benefits the Asian life insurance sector, which is facing major regulatory changes and the introduction of International Financial Reporting Standard No. 17 (IFRS-17). New risk-based capital frameworks have been implemented in Australia, mainland China, South Korea, Hong Kong and Singapore, with similar changes expected in Japan and Taiwan.

These regulatory reforms are causing life insurance companies to de-risk their balance sheets and exit liabilities that are longer-term or require more capital. By engaging in these transactions, insurers can free up capital to improve their solvency ratios or reinvest in digitalization or new, more profitable products.

Bullish on the sector

Guy Carpenter notes that private equity firms are becoming increasingly optimistic about the life insurance sector, and Asian insurers are similarly optimistic about investing in private equity and private credit. This trend in Asia exceeds changes in Europe, the Middle East, Africa and the United States.

For private equity-backed reinsurers, these transactions provide access to established books of business that provide permanent capital for reinvestment. Jay Carpenter points out that having insurance assets in different markets also allows for greater diversification.

Although private equity investment in reinsurance is relatively new in Asia, Guy Carpenter highlights that it is well established in regions such as the US, where Berkshire Hathaway’s acquisition of National Indemnity in 1967 marked the beginning of this interest.

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This interest grew after the 2008 financial crisis. By the end of 2022, private equity firms owned 137 U.S. insurance companies with assets of $533.7 billion, representing 6.5% of total U.S. insurance assets, according to the National Association of Insurance Commissioners.

Guy Carpenter also notes that regulators globally have scrutinized the involvement of private equity firms, with a panel from the US Treasury and the International Monetary Fund raising concerns about systemic risks. Issues arising from some smaller deals in Europe that failed, putting policyholders’ money at risk, have contributed to this scrutiny.

A vital source of capital

However, these unsuccessful transactions represent a small part of the overall trend. Jay Carpenter points out that most insurance companies view private equity-backed reinsurance as a vital source of capital, as their funds are secured and separated from other assets within large, well-funded reinsurance companies financed by credible international companies.

In most cases, clients experience no change, which is essential for a sector known for its longevity and stability. The insurance company maintains the servicing and administration of the policies. Consumers benefit as insurers, with their strengthened balance sheets, reinvest revenues into new initiatives and products, enhancing the customer experience.

This also provides the carrier with greater stability to pay non-guaranteed benefits such as dividends and bonuses, ensuring customers receive the products they have purchased.

Private equity-backed reinsurers are monitored by Asian and local regulators. Most of these groups are based in Bermuda, which obtained Solvency II equivalence from the European Commission in 2016, bringing its regulatory regime in line with those in the United States and Canada. Jay Carpenter points out that the Bermuda Monetary Authority has continued to strengthen its supervisory system.

As with traditional reinsurers, all elements of the reinsurance structure are negotiated, analysed, tested and transparent. The reinsurer aligns with an insurer’s appetite for volatility and risk, providing access to asset classes and investment expertise not typically available to traditional carriers, according to Guy Carpenter.

Guy Carpenter expects private equity interest in the life insurance sector in Asia to remain strong over the next decade, which carriers will welcome as they meet increasing capital requirements and seek to enhance profitability. The recent increase in transactions is likely just the beginning, which could benefit the sector’s long-term health.

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