InsuranceERM's life reinsurance conference landed in London this week. People came to connect, cut deals, understand risk, probe regulators and find out what's next for this fast-growing sector. Sarfraz Thind reports
It's a wrap. After seven months of planning and plotting and prognosticating, InsuranceERM's Global Life Reinsurance conference finally landed this week – and delivered one of the biggest, most diverse and engaged conference communities we have seen.
The event was backed by a stellar list of panellists and attendees from all over the world – at least 15 countries were accounted for – encompassing roles from CFO to CRO, CIO to CEO, structuring to capital management from insurers, reinsurers, asset managers, consultants, investment banks and not forgetting regulators.
But before we indulge in too much trumpet-blowing, what did we learn?
Primarily, that the life insurance business has undergone a huge transformation as a result of reinsurers bringing billions in new capital to fuel mushrooming primary markets.
And that people want more of this.
In countries like the US, UK and Canada, life reinsurance volumes have ballooned to support the growth of pension risk transfer and annuities. Participants see significant potential for future growth. But there are also many new markets ripe for opening, like Japan – where new solvency rules are leading to a massive decamp of assets offshore – and across Asia to support the growth of burgeoning retirement markets.
And in Continental Europe, where there has been plenty of innovation to support solvency capital management at primary insurers, but which, in comparison, looks like a market yearning for the match to spark it alight.
The event showed the desire to expand the current growth rates even further but also the challenges in making this happen. And, on the latter point, regulations and the attitude of supervisors remains key. The four-strong afternoon regulatory panel found itself confronted by a room of probing eyes and tough questions which made for compelling viewing.
Jurisdictions on display
The conference put the global theme front-and-centre, with panellists who came in from the UK, US, Switzerland, Spain, Bermuda, Netherlands and Canada. While the bigger markets may have gotten precedence, the interest in spreading this business to all four corners is evident.
Asia-Pacific, for example, was voted by 70% of audience as the most interesting region for future growth and Japanese insurers were well represented in the room. The country's over four trillion dollars of insurance reserves and long-lived population were cited as clear drivers for its potential to grow.
Karl Chappell, managing director for solutions at Resolution Life, believes Japan-focused reinsurers can bridge "language and cultural barriers" while offering access to long-dated global assets. "You need to have that local presence to be able to succeed," he said, "but global reinsurers bring a lot to the table."
Continental Europe was also a point of focus for several of the panels, in particular on the stuttering nature of progress on asset-intensive (aka funded) reinsurance displayed to date.
"Regulators, management teams and boards in my experience have shown a level of suspicion of anything that is seen as exotic or strange," said Carlo Elsinghorst, group CEO of Europe-focused reinsurer Monument Re.
Todd Solash, president and deputy CEO at European life insurance group Athora, said the problem in Europe was not regulations, but the mindset of all parties including supervisors. "The best thing that could happen would be a couple of benchmark transactions – that's what moves markets," he said.
In Continental Europe, the Netherlands was seen as the brightest prospect for future funded reinsurance deals: some 57% of the audience polled it as the European market with the most potential.
According to Kirsty Maclean, partner at Willkie Farr & Gallagher, the Netherlands is emerging as a successful market for indemnity-based funded reinsurance, while much of continental Europe remains constrained. She said: "Some of the same reinsurers who are active in the UK market are making a success of it in the Netherlands."
Cross-border reinsurance
Cross-border asset-intensive reinsurance, primarily driven by Bermudian-based firms, is of course the prime mover of life reinsurance liabilities right now. But where Bermuda goes the whisper of "capital arbitrage" is never too far behind. Shashank Bhalla, managing director of insurance group Brookfield Wealth Solutions, addressed this for his own company.
Michael Consedine, executive vice president, global head of government and regulatory affairs at Athene, spoke more specifically of the strong regulatory environment in Bermuda.
"We are in Bermuda specifically because it gives us the ability to efficiently and effectively, generate third-party capital and on a tax-advantaged basis that we can deploy globally. For us it's not about regulatory arbitrage. Bermuda is a very sophisticated regulatory jurisdiction, recognised by both the EU as Solvency II equivalent and the US as a reciprocal jurisdiction."
However, at the same time, he warned about potentially less robust new jurisdictions.
"In some jurisdictions, you have to be very careful because then they have an impact on the global system and do lead regulators to react."
Advancing innovation
The event was lucky to have a presentation from CFOs of the two companies – Manulife and RGA – involved in one of the most interesting asset-intensive deals of the past few years.
The latter reinsured $4.1bn in liabilities for Manulife subsidiary John Hancock last year, half of which was for long-term care (LTC) reserves and $2.2bn in structured settlements.
RGA's Axel André called the reinsurance relationship "like a wedding. This is a long-term decision. It has to be made carefully and thoughtfully."
Regulators
In the first panel of the day, Romain Paserot, head of solvency and capital at the International Association of Insurance Supervisors (IAIS) outlined some of the potential risks that the IAIS as the global standard-setter, along with national supervisors, have identified in this cross-border business where regulatory arbitrage, opacity and the impact of downturns on assets backing these deals, hang like an unwanted cloud.
"Sometimes supervisors don't have the adequate tools to require the appropriate information that they would like to get," he said.
He emphasised work was ongoing to improve oversight and awareness of these globalised markets, noting the IAIS's paper examining the structural shifts in the life insurance market – the consultation date for which expired on the day of the conference.
"Number one [for us] is education," she said. "You've got a lot of [insurance commissioners] who, like me, are generalists and we need more education about what's happening. It's a case of educating regulators about reinsurance, about alternative assets, all the new things that we're seeing."
Regulators expressed their need to staff up and get more boots in to be able to boost understanding.
And what about those claims of regulatory arbitrage? Earlier in the day, the audience questioned whether regulators trust each other, given some of the shots fired in the direction of jurisdictions that might allow regulatory arbitrage?
Gerald Gakundi, deputy managing director of supervision and head of insurance and investment funds, Bermuda Monetary Authority, said: "I would not say regulators not trusting each other is one of the issues, or at least it is not something that I have experienced. Bermuda being a reinsurance centre, we tend to see business that is very global. Our companies are writing business all over the world."
UK as reinsurance hub
An audience poll found that two-thirds of conference delegates believe the UK is a viable location for life reinsurance. So what needs to change?
Brookfield Wealth Solutions' Bhalla wondered whether the UK could have a framework where UK liabilities are reinsured to the UK. In this way, he said the country could become a global hub for liabilities which would help fund the UK economy.
Athene's Consedine said it was a strategic opportunity for the UK government – and governments of other countries – to effectively onshore their capital markets.
Kunal Sood, managing director of defined benefit solutions and reinsurance at life insurer Standard Life, said the application of the UK's current rules around conduct of business, which have been drawn up to protect consumers, may be holding back the development of life reinsurance transactions.
As Winston Churchill said, this is not the end. This is not even the beginning of the end. But it is, perhaps, the end of the beginning.