ROUNDTABLE: LIFE RE
Q3: WHAT ARE YOUR PLANS FOR GROWTH?
“We try to find solutions for complex liabilities.”
Kai Talarek
Talarek: Our line of business is in demand. We’ve seen quite a number of transactions come to market in 2021. The continued low yield environment puts a lot of pressure on primary insurers who write business that doesn’t meet their capital productivity objectives.
Yet there are potential partners able to manage those liabilities in a more economical, long-term-focused way. That is what we do.
All of this has culminated in a flurry of trades in 2021. We see ourselves as solution partner to our customers and clients rather than product seller. We try to find solutions for complex liabilities.
The original space we operated in—the annuity space—has given way to more complex liabilities. >>>
“More insurers are talking about flow transactions.”
Kevin Hovi
<<< We’re sure there will be other lines of business to follow. The overall challenge is of finding a suitable risk transfer mechanism that works for both sides.
Hovi: It’s been a busy market. We are focused mainly on annuity reinsurance in the US. A lot of larger transactions have come to market, but we are finding that 2021 will be relatively quiet for the smaller block purchases that we prefer to focus on.
More insurers are talking about flow transactions, where you form an ongoing partnership and take a piece of the insurer’s ongoing business, rather than taking on legacy liabilities.
We’ve also seen economies outside of the US, such as Asia, the UK, and Canada, recognise the Bermuda jurisdiction and we’ve seen some opportunities from those markets. There’s been a broader number of people looking to reinsurance as a solution.
“It’s really about product repricing and design.”
Allison Pedro
Pedro: We are active underwriters, so a persistently low interest rate environment creates some challenges. We write rate-sensitive products some of which were priced when interest rates were higher. It creates an environment in which, for us to continue to be profitable, certain products will be closed to new sales, and other products will be revamped and repriced both for the benefit of Sun Life and the benefit of our clients.
Products that were created and priced at a time when interest rates were significantly higher need to be reviewed. We are constantly evaluating the cost and trade-off between offering guaranteed coverage vs sharing risk with our client with the potential for strong upside investment returns.
Moving away from guaranteed products and towards products where investment risk can be shared. It’s really about product repricing and design for life insurance right now.
Haddad: In the broad sense, the global insurance and reinsurance market is facing intensifying regulations, competitive pressures, market complexity and increased financial pressures from the various stakeholders. Insurance and reinsurance companies are therefore are looking for capital-based solutions to provide a path for continued, stable growth.
There are currently three major drivers:
- Everybody talks about low interest rates, but here is an example of a more recent event. During 2020, the US insurance industry got a taste of what zero interest rates look like, and now even though rates have come up a bit, we are still looking at historically low interest rates.
“Many companies are looking to exit legacy blocks.”
Faisal Haddad
This has accelerated the need for traditional insurers and reinsurers to source higher-yielding investments, and/or to de-risk through divestments/reinsurance. Additionally, many companies are looking to exit legacy blocks or non-core lines of business to manage their capital and resources more efficiently.
- Looking ahead at new products, the extremely competitive new product market landscape has created the need for flow reinsurance and we are seeing today that the market activity has reached significant scale and has been accelerating with the decline in interest rates. Those who have access to higher-yielding alternative investments will have an advantage in this regard.
- Capital supply: in terms of capital supply, low interest rates are driving institutional investors to look for yield in non-traditional areas, and in seeking diversified yields they want to invest in the life insurance space which is known to generate a stable earnings profile. This increased interest in the insurance sector from new pools of capital provides much needed capacity to address some of the issues described above, including through solutions such as pension risk transfer, whether in the UK or the US. That’s a key tool in resolving what may otherwise be a multi-trillion dollar problem involving many of the world’s the largest corporations
Image courtesy of Shutterstock / Natalia Burnina
