It’s going to take time for Langhorne Re to achieve scale, as it seeks out opportunities to put its third-party capital backed reinsurance capacity to work in larger life and annuities transactions that are too big even for Reinsurance Group of America (RGA).
Langhorne Re was launched at the start of 2018 as a joint-venture, third-party capital backed life and annuity reinsurance firm, operated by Reinsurance Group of America (RGA) alongside RenaissanceRe (RenRe).
It marked the first foray into life and annuity reinsurance by specialist third-party capital manager and reinsurer RenRe, partnering with one of the larger players in that market RGA, with Langhorne Re set to augment capacity for large in-force block life transactions, helped by the backing of institutional investors from the capital markets.
Given the focus on finding transactions that are too big even for RGA and that offer the right fit for Langhorne Re’s investors, it is taking time to build a portfolio for the new firm.
But RGA CEO Anna Manning assures investors that while activity may be lumpy, the same amount of care and attention is going into identifying opportunities for Langhorne Re as it does within her own reinsurance firm.
“Langhorne is pursuing larger deals and we are seeing a good pipeline,” Manning said during her firms recent earnings call, adding that “With rates moving up we feel that will continue, if not potentially improve.”
However, the larger life and annuity reinsurance transactions tend to be more complex, Manning explained, meaning that they take more time to analyse and perform due diligence on, both on the asset and liquidity side of a portfolio.
“Langhorne investors can expect the same level of diligence on those deals as we do on the RGA deals,” Manning said.
Continuing, “It means that they are going to be lumpy. Remember we only launched Langhorne in the first quarter, so fees here is not the goal. The goal here is finding the right opportunity and then working hard to win that transaction.”
There comes a point where transactions are too large for RGA to underwrite on its own and here Langhorne Re can either take the entire deal, or perhaps allocate its capacity alongside RGA to enable the company to compete for those larger life and annuity reinsurance deals.
Explaining the process, Manning said, “We have established guidelines as to what constitutes a Langhorne deal and what constitutes an RGA deal, and the greatest factor would be size.”
There are other factors involved in identifying what risk goes where, Manning said, which are designed to help them to avoid any conflicts between Langhorne and RGA.
On size, which is the key determinant, Manning said that a $2.8 billion transaction would sit “very comfortably” on the RGA balance-sheet, but “Double that deal is starting to push. Anything north of that would indicate that it’s more a Langhorne deal, a better fit for Langhorne than it is for us.”
Langhorne Re is funded through $780 million of long-term equity capital commitments from RGA and RenRe, as well as other third-party pension fund and life insurance companies. As a result it is an interesting vehicle for institutional pension investors seeking to access a life-focused insurance-linked investment return.