Financial reinsurance (FinRe) can help Asian insurers optimise capital and strengthen their balance sheets, but should not be used as a substitute for disciplined capital management and product design, industry executives said at the Asian Actuarial Conference 2026.
Responding to a question on the use of financial reinsurance (FinRe) to manage insurers’ capital, solvency and balance sheets, Prudential Group Director, Risk Management Pranshu Maheshwari said insurers should first ensure products and their underlying economics are appropriately structured before turning to reinsurance as a capital solution.
“Reinsurance is definitely a tool, but it’s not a substitute for discipline, capital management, and product design at the insurance company side,” Maheshwari said. “It can be used at a later stage, but I think to get things right, one has to design things properly.”
Milliman Principal and Consulting Actuary Lee Wen Yee pointed out the limitations of using FinRe across Asia, where insurers operate under different regulatory frameworks.
“FinRe can be applied in some jurisdictions, but not others,” she said. “You can use it, but you need to really understand the regulations, the jurisdiction that you operate in.”
FinRe remains part of the capital management toolkit, but capital arbitrage-type transactions have become less common as solvency frameworks have shifted towards economic measures. RGA Senior Vice President, Asia Pacific Financial Solutions Gaston Nossiter pointed to Europe, where the move to Solvency II reduced the use of FinRe and shifted the focus towards transaction resilience and genuine risk transfer.
Reinsurance expands as a capital tool
The FinRe discussion formed part of a broader debate over the growing use of reinsurance as a strategic capital management tool across Asia.
Nossiter said reinsurance had historically been used primarily to protect insurers against risk and volatility, but its role has expanded as insurers look to optimise increasingly scarce capital.
Reinsurance can now support insurers with risk transfer, capital management and potentially their investment strategies, making it part of the wider capital framework.
The economics of transferring risk are another consideration, with insurers weighing the cost of reinsurance against the benefits from capital release and reduced earnings volatility, according to Maheshwari.
“If the cost of risk transfer is less than the benefits from capital release and management of earnings volatility, I think that would play a part in the decision-making,” he said.
Regulatory scrutiny rises
The wider use of reinsurance has also attracted increased regulatory attention, with the panel pointing to developments in Japan and Hong Kong and work by the International Association of Insurance Supervisors.
Nossiter characterised the increased scrutiny as a natural consequence of the expansion of the reinsurance market, with regulators seeking to ensure insurers understand the transactions they enter into.
That includes assessing whether transactions provide genuine risk transfer, remain resilient under stress and deliver the expected protection when needed. Cedants also need to understand their counterparties and underlying exposures, as two reinsurers with the same rating may still have substantially different balance sheets and risk profiles, he said.
The spread of risk-based capital regimes is similarly putting greater focus on collateral adequacy, governance, recapture arrangements and whether cedants have appropriate policies in place, according to Maheshwari. A key consideration is what would happen if a transaction were recaptured, including whether the cedant could continue operating and meet policyholder obligations.
“If there’s an event of recapture, what does that do to the balance sheet of the cedant? Can the company still function, meet policyholder obligations? That’s becoming quite critical on the reinsurance side,” Maheshwari said.
Product design and asset backing remain key
The panel stressed that capital efficiency needs to be built into products from the outset, with guarantees supported by appropriate assets.
Sun Life VP, Strategic Finance, Asia, Gautam Shah said customer needs should come first, but capital efficiency can help insurers price products more competitively. He said investor and analyst scrutiny has made capital efficiency more important for Asian insurers over the past four to five years.
Guarantee design is another part of that equation, with Shah warning that underpriced guarantees can create capital and remittance implications and make it harder to manage policyholders’ reasonable expectations (PREs) and deliver on customer promises.
“The duration at which the guarantee is offered is very important. A capital guarantee that kicks in after 15 years is far less expensive than capital guarantees that kick in, say, after three years or five years,” Shah said. “If a guarantee becomes too expensive, if it’s underpriced, then it becomes harder and harder to manage the PREs in the future… [and] deliver on the promises we are making to consumers.”
Such guarantees, in turn, need to be supported by an appropriate strategic asset allocation (SAA), particularly where insurers offer long-dated guarantees, Maheshwari said. “Whatever product design, customer features that we design have to be backed by proper SAA.”
