A new report from Marsh delves into the recent trend of financial institutions and private equity entities owning life insurance operations as companies increasingly recognize the strategic benefits of establishing offshore reinsurance entities.
The global broker notes that life reinsurance offers enhanced financial flexibility and substantial capital relief for life insurers, also facilitating reductions in portfolio costs and enhancements in return on capital.
This trend has contributed to a noticeable increase in the assets of offshore long-term reinsurance entities, particularly in Bermuda and the Cayman Islands. According to the Bermuda Monetary Authority (BMA), as of December 2022, there were 159 licensed entities engaged in long-term commercial life insurance or reinsurance, marking a 7.4% increase from the previous year. Bermuda’s long-term commercial companies reported total assets nearing $1.07 trillion by the end of 2021.
Meanwhile, the Cayman International Monetary Authority (CIMA) noted 38 licensed international long-term life insurance or reinsurance companies in the fourth quarter of 2023, with their assets totaling almost $75 billion.
Marsh explains that life reinsurance brings several advantages, including capital optimization, which allows insurers to reduce liabilities on their balance sheets and reallocate capital more efficiently. It also provides risk mitigation by sharing risks with a reinsurer, thus offering a financial cushion for claim payments and demonstrating robust governance by integrating reinsurance into capital management strategies.
Furthermore, reinsurance also empowers insurers to strengthen their balance sheets and invest in growth opportunities, whether in new or existing products.
However, Marsh also noted that the evolving economic landscape and regulatory changes present challenges to life insurers. For instance, Bermuda is updating its Economic Capital framework, effective March 31, 2024, requiring life insurers to adjust their reserve valuations and capital management strategies.
In addition, fluctuations in interest rates necessitate vigilant governance and portfolio management, underscoring the importance of experienced partners to navigate the regulatory complexities across different jurisdictions.
As these dynamics unfold, life insurers will need to adapt their strategies to leverage the benefits of life reinsurance while addressing the challenges posed by regulatory and economic changes.
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