How private equity will mould the region’s life insurance market

Asia saw $25b in private equity-backed reinsurance transactions in 2023.

Private-equity-backed reinsurers are deemed nonchalant towards Asian life insurance assets, whilst there are assets and liabilities worth $2.0t assets that are giving mediocre capital returns.

In a recent Guy Carpenter insight report, it unveiled that by 31 December 31 2023, Asia saw $25b in private equity-backed reinsurance transactions, just 2% of the total addressable assets.

“However, the value of deals rose tenfold between 2019 and 2023, led by recent transactions between insurers such as AXA HK, Manulife, FWD, T&D, Daiichi and Japan Post and reinsurers such as KKR-backed Global Atlantic, Apollo-backed Athene, Blackstone-backed Resolution, Carlyle-backed Fortitude and Reinsurance Group of America (RGA),” the Guy Carpenter report said.

This influx benefits the Asian life sector amid regulatory changes and the introduction of IFRS-17. 

Regulatory reforms across the region, including in Australia, China, South Korea, Hong Kong, and Singapore, and upcoming changes in Japan and Taiwan, prompt insurers to de-risk and free up capital for solvency or reinvestment in digitalization and profitable products.

Asian insurers are increasingly investing in private equity and private credit, a trend outpacing EMEA and the US. 

“Private equity interest in Asia’s life insurance sector is likely to remain strong over the next decade, which will be welcomed by the region’s carriers as they look to satisfy the dual demands of increased capital requirements and enhanced profitability,” it said.

For private equity-backed reinsurers, these deals offer access to in-force business and greater market diversification. 

Whilst new to Asia, private equity involvement in life insurance is well established in the US, with significant growth since the 2008 financial crisis. 

By the end of 2022, private equity firms owned 137 US insurance companies with $533.7b in assets, 6.5% of the total US insurance assets, according to the National Association of Insurance Commissioners.

Despite scrutiny from regulators and concerns over systemic risks, most insurers see private equity-backed reinsurance as vital for capital. 

These funds are typically well-collateralized, and customers rarely experience changes, ensuring stability in a sector known for longevity.

Insurers retain policy servicing and use newly freed capital to improve customer experience through new initiatives and products, enhancing stability for non-guaranteed benefits.

Private equity-backed reinsurers are monitored by Asian regulators and are mostly domiciled in Bermuda, which has Solvency II equivalence from the European Commission. 

Bermuda's regulatory regime is on par with the US and Canada, and its authority continues to tighten supervision.

These reinsurers provide access to asset classes and investment expertise often unavailable to traditional carriers. 

“Whilst the recent uptick in transactions has managed to grab the headlines, this may just be the tip of the iceberg. Ultimately, this new injection of funds can only be beneficial for the long-term health of the sector overall,”

This trend is likely to continue, bringing more capital and stability to Asia's life insurance market.