The formation of Langhorne Re as a joint-venture, third-party capital backed life and annuity reinsurance firm will help to increase the capacity and reach of Reinsurance Group of America (RGA), enabling it to access larger in-force transactions on its own, rather than alongside other reinsurers, CEO Anna Manning has said.
Importantly, Langhorne Re, which RGA established alongside Bermudian reinsurance and third-party capital management specialists RenaissanceRe, will leverage institutional capital in an efficiently structured joint-venture vehicle, that will act as a source of companion capacity for RGA’s own underwriting balance-sheet.
So as well as augmenting RGA’s reinsurance capacity in terms of size, it will also augment it in terms of efficiency too.
Speaking during the Reinsurance Group of America fourth-quarter earnings call this week, CEO Anna Manning explained some of the thinking behind the set up of the joint venture reinsurer.
“We’re excited about the formation of Langhorne Re, which will be complementary to our efforts and will increase our capacity and reach, particularly in terms of larger transactions,” Manning said.
Continuing, “We view the opportunities for Langhorne to be very consistent with the risks that RGA has successfully been underwriting over the last decade or more. They will not be new risks to us.
“Langhorne really is an opportunity for us to participate fully in all of the in-force opportunities, including these larger opportunities.”
So Langhorne Re will deploy its capacity directly into these larger deals, perhaps also alongside RGA Re’s own balance-sheet capital, giving RGA access to underwrite the transactions and Langhorne Re acting as an efficient capacity provider or as a sidecar style source of capacity, boosting their ability to do larger transactions.
Previously, RGA used to work alongside other reinsurers in order to fulfill clients needs for large, in-force life and annuity reinsurance transactions, but now it hopes to increasingly go it alone with the help of Langhorne.
Manning said, “In the past, we did so by supporting other bidders on these larger deals, either by taking parts of the business that didn’t fit their business models, or by taking a share.
“Our experience with that approach, three parties to a deal, is it made things a lot more difficult and sellers tend to prefer cleaner options.
“So, we partnered with RenRe to launch Langhorne, allowing us to pursue these larger deals independently, without having to partner with another buyer.”
So Langhorne Re is going to be targeting the larger life and annuity, asset intensive transactions in the United States and Europe, areas of the market where RGA is already active as a participant on deals.
“We had approached these larger opportunities in the past through a partnership with a buyer. We think this is going to be a more successful approach than that,” Manning explained.
“It’s really a matter of size. So, larger opportunities are outside of the reach of how comfortable we are, in terms of the amount of capital that we will deploy,” she commented.
Adding, “This vehicle allows us to work with other third-party capital providers. So, this is not just a partnership with RenRe. The committed capital has been contributed by generally large financial institutions that have a very similar view in terms of long-term business. It’s really more of a permanent capital vehicle.”
Manning said that Langhorne Re will combine, “RGA’s expertise in the life and annuity market and RenRe’s expertise in managing these vehicles.”
Also of note is the potential for fee income to be generated from Langhorne as well as the risk premium and Manning noted, “It provides us an opportunity to earn both our risk-based profit as well as fee profits or fee income, from originating and managing the business.”
Importantly, she said, “We view Langhorne to be complementary to RGA, not in conflict to what RGA is pursuing. So, we would not be in the position of competing against Langhorne from RGA.”
The Langhorne Re joint-venture is also interesting from RenRe’s point of view, as it will bring the reinsurer a new source of fee income revenue from lines of business where it has not been involved at all in the past.