Bermuda-based reinsurer Global Atlantic finished off 2023 by announcing a US$9.6bn life backbook deal with the Japan arm of Canadian insurance firm Manulife. And Manu Sareen, co-president and head of institutional markets at the firm is confident that more deals will follow in the first few months of 2024.
“We are in the process of announcing transactions in the next one or two quarters with Japanese insurers,” he tells (Re)inAsia over a video call.
Asia has traditionally been a quiet market for these types of asset intensive reinsurance deals. But since news of Global Atlantic’s US$4.8bn transaction with AXA Hong Kong, broked by Guy Carpenter in July 2021, emerged, (re)insurers have been looking at the market’s potential.
Manu Sareen
Co-President and Head of Institutional Markets at Global AtlanticCarlyle-backed Fortitude Re has inked three backbook deals since the AXA Hong Kong transaction. While in November Apollo-backed Athene announced it had acquired a block of in-force annuities from the Japan arm of FWD.
A number of other non-public deals are believed to have taken place and Sareen says he expects growth to continue.
“As long as demand continues from firms which have relationships with regulators and insurance companies, we’re quite confident that the path will be similar to what we see in the US and the UK.”
While activity in North America and the UK in recent years has been driven by (re)insurers scooping up unloved pension funds, the market for Asian asset intensive reinsurance deals is likely to focus on life backbook trades.
Japan has the world’s second-largest life insurance market and is the prime candidate to drive activity, particularly following the October 2023 call from its prime minister for the country’s savings pool to be redeployed towards economic growth.
Japan’s savings switch
“Japan has more than 2,100 trillion yen, or US$14 trillion, in household financial assets, most of which are owned as savings.
I am pushing forward a policy package to channel these huge assets from savings into investments, which I believe will contribute to sustainable growth not only in Japan, but also on a global scale,” Fumio Kishida told a United Nations meeting.
Sareen says as Japan’s insurers adjust their business model to meet Kishida’s aims it will also boost asset intensive reinsurance activity — it is exactly these drivers which are behind the firm’s upcoming deals.
Victor Hai, Hong Kong-based Senior Vice President of Guy Carpenter’s Life & Health division also points to a need for firms to optimise their portfolios which may be the result of different business plans, or M&A activity.
“Many legacy backbooks were written 10-20 years ago, and some may have been taken on through earlier acquisitions.
Completing transactions on these legacy books enables insurers to pivot and focus on growth areas, for example developing new products to meet the growth demands of Asia.”
But it’s not just a switch away from savings products which will drive activity in the asset intensive reinsurance sector.
Victor Hai
Senior Vice President, Life & Health at Guy CarpenterRegulation, regulation, regulation
Regulation will also spur life insurers to look for ways to optimise their capital use, particularly the switch to risk based capital (RBC) solvency regimes in a number of jurisdictions, says Clement Bonnet, Hong Kong-based Principal at consultants Milliman.
Bonnet also points to the role that global accounting standards, which were implemented by — most —countries in Asia at the start of 2023 have to play.
“The switch to RBC regimes in a number of jurisdictions, combined with the introduction of the IFRS 17 accounting framework, means insurers in the region are moving to an economic balance sheet management approach.”
Although the savings business covers a large proportion of the business sold in Asia, more companies are looking to offer competitive savings products in a challenging economic environment.
Clement Bonnet
Principal at MillimanAt the same time, insurers are looking to optimise their saving’s businesses balance sheet in the context of the new regulatory environment,” says Bonnet.
According to Guy Carp’s Hai it is important to note that while asset intensive reinsurance deals will play an important role in rationalising insurer’s balance sheets, other options should also be considered.
“There is a balance to be struck between reinsurance, asset liability management, and capital raising for insurers looking to optimise their capital use,” says Hai.
Emerging Asian Markets
The Senior Vice President also says that while deals have so far focussed on Japan and Hong Kong activity could spread to other parts of the region.
“Korea’s removal of its ban on coinsurance in 2020 opened up the market for legacy transactions.
As a result, deals have been completed in Korea. More markets in Asia are active now in the legacy transactions sector and more discussions are happening in places like China and Singapore.”
Victor Hai
Senior Vice President, Life & Health at Guy CarpenterDespite Taiwan’s lifers facing the issue of high guarantees on legacy products and a 2026 switch to new RBC and accounting standards Hai doesn’t expect there to be any deals struck there in the near term at least.
“Some regulatory complexities around reinsurance exist in Taiwan, so there may be a lag in the emergence of deals there,” he says.
Taiwan’s life firms are dealing with pre-existing issues relating to the use of collateral on offshore reinsurance contracts but Bonnet says that other regional regulators may have questions over the role of private equity-backed firms in these transactions.
Regulators look at private equity
Global Atlantic, like Fortitude Re, is backed by private equity, in its case KKR.
While no Asia deals have yet been scuppered by concerns over private equity’s role, on 30 January the German regulator stalled a move by Zurich to offload US$20bn of German backbook life policies to Cinven-backed Viridium Holdings.
Milliman’s Bonnet spoke to (Re)in Asia before the Zurich deal collapsed, but he said that similar concerns could slow down the market’s development in Asia.
“Supervisors in some markets could potentially be reluctant to allow reinsurers backed by private equity firms to strike deals.
The outlook for the Asian market is very positive. But the timeline may take longer than in the US because regulators in this region could take a more conservative view when approaching these deals,” says Bonnet.
Clement Bonnet
Principal at MillimanHai says that it’s not only regulators which may have fears over private equity’s role. He says that another issue is the lack of familiarity of insurers in the region with some of the major offshore players in the sector which are now eyeing Asia.
“One of the challenges observed in the Asian market is the relatively lower familiarity with certain reinsurers that may not be widely recognized in the region, despite their strong global track record and support from prominent global asset management and private equity firms,” he says.
Manu Sareen
Co-President and Head of Institutional Markets at Global AtlanticGlobal Atlantic’s Sareen took a more positive view over Asia’s the regulatory landscape.
“These are publicly announced deals; our AXA Hong Kong transaction was in fact reviewed by the Hong Kong Insurance Authority.
Our view, from the outside looking in, is that our counterparties on these transactions have gotten the regulators comfortable, and they will continue to do so.
Given the relationships that a lot of the Asian regulators have with Bermuda and their comfort level with it we think that this is a market that has a long way to run,” says Sareen.
