The total amount of life reinsurance earmarked capital has grown significantly in traditional and asset-intensive markets over the past decade, and Guy Carpenter and AM Best expect this trend to continue, with a further 10% growth by 2025, with total global deployment expected to exceed $160 billion.
The expansion of dedicated life reinsurance capital is driven in part by private equity reinsurers and asset managers entering the market through reinsurers or sidecars, attracted by the opportunity to collect AUM and the management fees to originate appropriate investments, Guy Carpenter, Marsh Re’s brokerage arm, said in a recent report.
Third-party capital will account for approximately one-third of total capacity by 2025, reflecting the attractiveness of the life reinsurance market. This marks a more than doubling of third-party capital to about $57 billion in 2025, relative to Guy Carpenter’s estimate of about $24 billion in 2022.
Guy Carpenter also noted that despite continued global headwinds and a fractured geopolitical environment, the expansion of life reinsurance capital is not limited to specific regions or regions. In fact, every region has seen material growth in life reinsurance capital over the past decade, and the company expects this growth to continue as more cedants seek to benefit from the competitive global reinsurance environment.
Guy Carpenter estimates that North American life reinsurance reinsurance capital reserves have increased by about 18% over the past year, with Europe/UK and Asia leading slightly, with year-on-year increases of 28% and 29% respectively.
From a reinsurance perspective, this is consistent with increased interest in UK pension risk transfers, European asset-intensive transactions, and Japanese asset-intensive and pension risk transfer transactions.
Reinsurance brokers expect the relative growth in capital provisions in Asia to continue to diverge further from North America and Europe/UK over the next few years.
Guy Carpenter pointed out that the reinsurance capital deployed in the life insurance field has also increased accordingly in regions that are usually considered non-core by many reinsurance companies. Reinsurance capital in other regions is expected to increase by about 19% year-on-year.
Guy Carpenter said: “While this may be attributable to specific countries and regions, we believe it is evidence that reinsurers are looking further afield, with cedants from ‘developing’ jurisdictions becoming increasingly sophisticated globally as the life insurance market matures. Reinsurers’ growing interest in these regions reflects the increasing competitiveness of more mature markets, which benefits cedants globally.”
The report highlights that life and annuity reinsurers remain well capitalized, leveraging their capabilities to provide solutions that improve capital efficiency and manage risk.
The influx of new capital and capacity—particularly from third parties such as investment manager-owned reinsurers and private equity-backed entrants—increases competition and spurs innovation, particularly in asset-intensive and structured reinsurance products.
Guy Carpenter concluded: “As the global life insurance industry enters the second half of the century, this growing reinsurance capacity will continue to provide an attractive solution for life insurers seeking to reduce risk and move to a more ‘capital light’ business model, particularly in regions and regions that may have paid less attention to this aspect of their business models to date.”