Tencent shows tech’s appetite to own access to reinsurance capital

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Tencent Holdings Ltd., the Chinese multinational technology conglomerate, has provided one of the clearest examples of a tech giant wanting to own its access to reinsurance capital, a trend we’ve been anticipating would emerge.

tencent-logoOur regular readers know we have a passion for technology, alongside risk transfer and use of efficient capital, believing that the efficiencies of advanced tech can be combined with efficient access to reinsurance capital, in order to provide better, more responsive and ultimately cost-effective insurance products to consumers.

There have been a number of glimpses of this kind of development over the years, with most of the major technology giants of the world having some interest in insurance or reinsurance, or toying with how they themselves access risk capital.

Amazon, Google, Tesla, among others, as well as investors in tech like Softbank, have all been closely linked with initiatives to access reinsurance capital more efficiently, either for pure risk management purposes, or to enable the delivery of customised and better-priced insurance solutions.

At their core, these companies are looking to either source their risk capital more efficiently, tap into the appetites of the capital markets for insurance risk, or own their own risk capital pools, either by developing their own re/insurers, or in partnership with established players and fronting technologies.

But none of them have gone as far as Tencent now has, as the Chinese technology giant has now launched a reinsurance company, with the support of a private equity investor.

FuSure Reinsurance Company Limited has been launched as a joint venture, with Tencent being the majority shareholder.

FuSure has already obtained a license to provide reinsurance services in Hong Kong, having been established on May 25th, 2020 with HK 1 billion (approx. USD 129mn) of capita, our sister publication Reinsurance News reported yesterday.

As a result, FuSure Reinsurance can underwrite general reinsurance business, thanks to the license issued by the Hong Kong Insurance Regulatory Bureau.

FuSure Reinsurance is expected to underwrite business globally, although with a relatively niche focus of health reinsurance products to begin.

AM Best has now assigned FuSure Reinsurance Company Limited (FuSure) (Hong Kong) a Financial Strength Rating of A- (Excellent) and a Long-Term Issuer Credit Rating of “a-” (Excellent).

The company is 85.01% owned by Tencent and 14.99% owned by Grand Azure Limited, a privately owned investment company, AM Best explained.

With a focus on short-term health reinsurance in Greater China to begin, FuSure expects to source most of its premium revenue through Tencent’s established insurance client network, the rating agency explained.

The plan then is to underwrite increasing lines of business and also to write business from around the globe, providing the necessary reinsurance capital to support Tencent’s own expansion into more lines of insurance through its financial technology (FinTech) interests, we understand.

FuSure Reinsurance is recognised as “a long-term strategic investment of Tencent” AM Best says, adding that it expects FuSure will “benefit from the parent group in terms of effective use of innovation and technology, leading to competitive advantages in product design and pricing sophistication.”

For Tencent, having access to a reinsurer that can back its health related insurance and protection products in China is a first and valuable step, in providing the company with efficient and well-priced reinsurance capacity to underpin these efforts.

Going further, a dedicated source of reinsurance capital can make Tencent’s innovation much faster and more streamlined, as FuSure and Tencent’s fintech arms can work together to create insurance solutions, bringing reinsurance capital right up to the customer, with less cost from intermediation and third-parties in between.

Yes, it’s another spin on captive reinsurance perhaps, but a licensed and rated carrier means that FuSure can underwrite business from other parties than Tencent’s own programs as well, adding diversification in time, if it chose to.

The reinsurer in Hong Kong can also be used as a conduit to the capital markets, if Tencent wanted to, especially now Hong Kong has an insurance-linked securities (ILS) regulatory regime in place, making issuing catastrophe bonds or other ILS structures for retrocession purposes possible now.

Tech giants, like Tencent, are beginning to own large tracts of the insurance risk-to-capital market chain, as they have origination nailed through their broad customer relationships and technology, Tencent has a major holding in Waterdrop (an online health insurer that recently listed on the NYSE), and now much of the chain is completed (and owned) with reinsurance capital access secured through FuSure Reinsurance.

Owning the chain, as much as is possible, should allow Tencent and its interests like insurtech Waterdrop to innovate far more rapidly, secure in the knowledge that it has access to reinsurance capital and that this can be as efficiently deployed as needed to support Tencent’s growing interests in the insurance space.

At some stage, a technology giant, like a Tencent, will figure out a smart structure that enables them to access the appetite of capital market investors, such as pension funds, for insurance risk returns, while delivering a liquid pool of reinsurance capital to enable them to innovate rapidly in the insurance space.

As ever, this is about smoothing that chain, from original insurance risk through to the eventual capital able to bear it. By owning more of the insurance and reinsurance platform, tech giant’s can generate efficiencies through effective use of capital, reduced intermediation expense, scale and their own technological prowess, all to the benefit of their consumer base.

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