Private equity-backed reinsurers expand into Asia's life market

Private equity-backed reinsurers' interest in Asia-based life insurers is expected to grow in the coming years amid an ever-maturing market.

Reinsurance block transactions have been a hugely successful transaction type in the US. Now, insurers in Asia — specifically Japan, Hong Kong and Singapore — are looking to reinsurance transactions to raise capital, minimize risk or optimize their balance sheet, Manu Sareen, co-president of KKR & Co. Inc.-backed Global Atlantic Financial Group Ltd., told S&P Global Market Intelligence.

"Broadly speaking, large sophisticated mature markets are growing in size and require new capital," Sareen said. "They're leveraging the same tools that have been very successful in the US."

Asian life insurers are pursuing risk transfers because they provide new options and capital from reinsurers who can more efficiently take on investment risks, said Matthew Rose, head of life and capital for Asia-Pacific at Guy Carpenter.

"The transfers allow life insurers to de-risk from longer-term risks, particularly around investment and spread risk," Rose said. "To date, the type of products that have been transacted have been annuities and those related to whole
life."

Relative to previous years, 2023 was an active year for risk transfer deals involving life insurers based in Asia.

The most recent deal was an approximately $4 billion agreement between Global Atlantic and Manulife Life Insurance Co., one of the largest reinsurance block transactions in the region. The transaction is reportedly part of a broader $10 billion reinsurance agreement between the companies and is expected to close in the first half of 2024.

There is an increasing demand for these types of transactions across Asia.

"Although it is difficult to pinpoint an exact number, we foresee the number of deals increasing in the short to medium term — the catalysts being regulatory capital and accounting changes in the coming years," Rose said. "The participation will become more concrete in the longer term as this segment matures within Asia."

These sizable transactions and the availability of resources from KKR, which recently bought full control of Global Atlantic, have given the company a clear line of sight into doing business in these three markets and beyond, said Sareen, pointing to South Korea.

"Given the opportunity size we see, we don't think that we need to go beyond that, at least for the present moment," Sareen said.

Japan was also the location of a recent deal between Apollo Global Management Inc.-backed Athene Holding Ltd. and FWD Life Insurance Co. Ltd., the former's inaugural block reinsurance deal in the region.

"Japan-based insurers are increasingly seeking safe yield, which presents sizeable in-force and new business opportunities for Athene," an Athene spokesperson said in a statement to Market Intelligence.

Growing pains

Reinsurance transactions are expected to grow in markets like Japan, but also in South Korea and Taiwan, said Bernhard Kotanko, a senior partner with McKinsey, due to their favorable regulatory and capital markets.

"However, there are also challenges to such models, especially as often local capital markets lack depth and sophistication of instruments," Kotanko said.

Other reinsurance deals in the region in 2023 also involved private equity-backed companies such as Athene and Fortitude Re.

Private capital providers have viewed insurance as an interesting investment space for a while in North America and Europe, and they now likely view the Asian market in the same way.

"Investors like the stable nature of long-dated liabilities, and they feel confident that they can deliver superior risk-adjusted returns, utilize regulatory advantages, including underwriting the business from favorable locations," said Kotanko.