Reinsurance Group of America (RGA) is waiting patiently to execute its first transaction using the joint-venture, third-party capital backed life and annuity reinsurance firm Langhorne Re and has got close, but a first deal still eludes the company.
Reinsurance Group of America (RGA) started Langhorne Re alongside its partner in the joint-venture RenaissanceRe (RenRe), the Bermudian reinsurer and third-party capital manager.
Langhorne Re was launched at the start of 2018 and 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 in RGA.
Langhorne Re was set up to augment RGA’s capacity to engage in large in-force block life transactions, helped by the backing of the third-party institutional investors from the capital markets.
By bringing third-party capital into RGA’s business model, Langhorne Re can act almost like a companion balance-sheet for the reinsurance firm, enabling it to do much more than it could before.
For joint-venture partner RenRe, the earnings from managing the vehicle and third-party capital will make an attractive addition to its own revenue, coming from the life and health side of the market where the reinsurer does not otherwise operate.
But to get started Langhorne has got to find the deals that fit its risk appetite and the return requirements of its investors, then get involved in the bidding process for them as a new player in the market and win them. Something which naturally takes time.
RGA CEO Anna Manning discussed progress with Langhorne Re during the reinsurers recent earnings call.
She explained that the ramping up phase is now completed and the firm is now actively bidding on transactions in the market.
“So at this stage we’re fully staffed, we’re deal ready and we’re active as we speak,” Manning said.
Cautioning, “Remember that the deals, the market that we’re focusing on is the larger size deals and those deals are going to be lumpy and they are generally complex and they take time.”
“We were quite far along on some of the transactions that we’ve been working on over the course of the last year. In fact, one in particular, the client pulled back very late in the process and it was for reasons completely unrelated to Langhorne,” she continued.
Manning said that she felt “we actually had a good offer on the table,” but explained that due to a change in circumstances, the client in question decided to pull the deal prior to execution.
“It wasn’t that we lost the deal, it simply didn’t execute,” Manning further explained.
“Langhorne has been received favourably by both our clients and the broader market,” Manning continued.
Adding that, “So here it’s patience. We’re going to pursue the same approach we’ve used for RGA, that’s our strategy. We’re going to be selective, we’re not going to reduce our standards, we’re not going to cut corners. So it’s going to take a little bit of time.”
It was always going to be so, given the competition can be fierce for these large life related and annuities transactions.
With significant bidders out there, it’s likely to be both a combination of best-fit as well as price that wins these deals. Positioning RGA very well and Langhorne Re as a result, given the firms experience in the sector.
It’s just a matter of time until Langhorne Re wins one of these and it will be interesting to see how the joint-venture takes off after it starts to build its portfolio.