AM Best: insurers expanding existing footprints in Bermuda
Some insurers are looking to expand existing reinsurance footprints in Bermuda through affiliated or independent companies, according to an article in the latest edition of Best’s Review.
The monthly magazine from ratings agency AM Best, said some life and annuity insurers were turning to Bermuda as a place to start new entities or to acquire reinsurance as they sought capital efficiency and cede risks such as multi-year guaranteed annuities and spread-based products.
“Every company has a different reason — capital efficiency on the capital model for how some assets are charged, arbitrage, tax reasons,” said Edward Kohlberg, director, AM Best.
“There is a lot of annuity growth to be had and if you can manage that growth in a more efficient manner, then it benefits the company — they can sell more.”
Michael Porcelli, a senior director with AM Best, said: “There’s a long history of companies having an interest in Bermuda.
“On the part of professional insurers there’s the possibility of capital efficiency by reinsuring business to Bermuda.
“It could be an affiliated company or it could be an unaffiliated company that they’ve sponsored and they’re finding a different investor base for.”
Private equity and asset managers have been the primary source of capital for newer entrants in both the annuity and block reinsurance markets in the United States, Bermuda and the Cayman Islands.
The article said that industry group Limra found total annuity sales in the first nine months of 2023 were $269.6 billion, up 21 per cent from the same point in 2022. For the full year, Limra is projecting total sales exceeding $350 billion, which would be 10 per cent above the all-time high set in 2022.
In some cases, carriers are reinsuring existing blocks of business with Bermuda-based reinsurers, the article said.
It added that a prime example was Lincoln Financial Group, which recently turned to Bermuda to secure a large reinsurance deal.
Fortitude Reinsurance Co Ltd said it had closed a $28 billion reinsurance agreement with Lincoln National Life Insurance Corp. Under the deal, Lincoln National will reinsure a “significant” portion of its universal life insurance and fixed annuity business to Fortitude Re.
Other companies are either setting up Bermuda-based entities or have indicated they are in various stages of planning to do so. CNO Financial Group Inc is doing just that.
In November 2023, the company said it had received necessary approvals to stand up offshore reinsurer CNO Bermuda Re and hoped to complete a $6.2 billion fixed annuities deal as its inaugural transaction.
In March 2023, Fidelity Investments created Soteria Reinsurance Holdings LLC in Bermuda specifically to focus on affiliated reinsurance of fixed annuities and pension risk transfer deals – essentially a conversion of some or all liabilities of existing pension funds into bulk annuities.
• The full article can be read in Best’s Review under Related Media.
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