The impact of alternative reinsurance capital in the life reinsurance sector provides one of the largest traditional players with both competition and new opportunities, according to the CEO of Reinsurance Group of America.
Reinsurance Group of America has around $2.9 trillion of life reinsurance in force at any one time and total assets of $39.7 billion, making it one of the largest life focused reinsurance players in the world. With alternative and third-party reinsurance capital seeking out new opportunities and some ILS managers already having a life focus, it’s no surprise to hear that it is impacted.
Greig Woodring, President and CEO of RGA Re, was questioned about alternative reinsurance capital during the firms recent Q2 2014 earnings conference call. He was asked what role he saw for alternative capital in the life reinsurance space and whether he expected life insurance securitization to make a come back.
Woodring replied; “I think it’s very possible that alternative capital will play a large role in the coming years. They’ve demonstrated an appetite and I think they’re still interested in the marketplace.”
A number of the world’s top-ten ILS managers also have life insurance linked securities funds, participating in private transactions and underwriting life reinsurance on a fully-collateralized basis. As a result there has always been an element of third-party capital in the life reinsurance space but it has not grown as rapidly as catastrophe linked capital in recent years.
Woodring said that there are others in the market seeking new opportunities in life reinsurance. This included private equity capital as well as alternative capital, with some of this new money looking for run-off opportunities.
The impact isn’t huge though as that is not really in RGA Re’s core business area, Woodring explained; “This provides us with more competition and maybe some more opportunities at times because of partnership arrangements, but mostly it’s a little bit off to the side of most of the activity that we do. We would view all this as competitive, but not unduly disruptive of our intents in the marketplace.”
On the subject of life insurance and reinsurance securitization, CFO Jack Lay said that there’s always some discussion about it. He said that there is always awareness of the opportunity and the knowledge that the demand for such alternative assets is high, but he doesn’t know of anything that is in progress, but it could well be an area that picks up in the future.
It is likely that more ILS capital will make its way into the life insurance and reinsurance market, as managers find new ways to access these risks, package them for investors and assets in the ILS space devoted to life risks will grow as a result. It is likely to be a slower growth trajectory than seen for property catastrophe risks, but the diversification it will offer will be really valuable to investors and ILS managers and so efforts to access life risks in new ways will no doubt continue.