As of December 31, 2023, private equity-backed reinsurance transactions representing US$25 billion of assets had occurred in Asia, only 2% of the addressable total. However, the value of deals rose tenfold between 2019 and 2023, led by recent transactions between insurers such as AXA Hong Kong, 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 influx of private equity money delivers considerable benefits to the Asian life sector, which is experiencing an unprecedented wave of regulatory change, as well as grappling with the introduction of International Financial Reporting Standard 17 (IFRS 17).
New regulatory regimes are being introduced across the region to make them more focused on risk-based capital frameworks, with changes already in place in Australia, mainland China, South Korea, Hong Kong and Singapore, and due to come into effect in Japan and Taiwan.
These reforms are leading life insurers to de-risk their balance sheets and seek to exit longer-term, or more capital-intensive, liabilities. Through entering these transactions, insurers are able to free up capital they can then use either to improve their solvency ratio or reinvest in areas such as digitisation or new, more-profitable products.
Concurrently, just as private equity firms are becoming more bullish on the life insurance sector, Asian insurers have become increasingly bullish on investing in private equity and private credit, with the Asian trend toward investing in these areas outpacing the change in EMEA and the US.[1]
For private equity-backed reinsurers, the transactions deliver access to in-force books of business that provide permanent capital, which can be re-invested. In addition, through buying up insurance assets in different markets, private equity-backed reinsurers benefit from greater diversification.
While private equity investment in reinsurance may be relatively new to Asia, it is well established in such regions as the US, where private equity interest in life insurance began with Berkshire Hathaway’s acquisition of National Indemnity in 1967. This interest accelerated after the 2008 financial crisis.
At the end of 2022, private equity firms owned 137 US insurance companies with US$533.7 billion in assets, representing 6.5% of total US insurance assets, according to data from the National Association of Insurance Commissioners.[2]
The involvement of private equity firms globally has been met with increased scrutiny from some regulators, with a US Treasury Department Panel and the International Monetary Fund both raising concerns about systemic risks to the economy. This has been caused at least in part by issues raised by some smaller deals in Europe that failed, putting policyholders’ funds at risk.
However, these unsuccessful transactions represent a small fraction of the overall trend. The majority of insurers continue to see private equity-backed reinsurance as a vital source of capital, with their funds collateralised and quarantined from other assets within substantial, well-funded reinsurers financed by credible global firms.
In the vast majority of cases, customers experience no change, which is vital for a sector renowned for longevity and stability.
