How can reinsurance promote the growth of life insurance?

How can reinsurance promote the growth of life insurance? | Insurance Business Canada

Reinsurance

How can reinsurance promote the growth of life insurance?

Global broker analyzes the sector’s recent trends and its benefits for life insurers

Reinsurance

By
Kenneth Araullo

A new report from Marsh delves into the recent trend of financial institutions and private equity entities owning life insurance operations as companies increasingly recognize the strategic benefits of establishing offshore reinsurance entities.

The global broker notes that life reinsurance offers enhanced financial flexibility and substantial capital relief for life insurers, also facilitating reductions in portfolio costs and enhancements in return on capital.

This trend has contributed to a noticeable increase in the assets of offshore long-term reinsurance entities, particularly in Bermuda and the Cayman Islands. According to the Bermuda Monetary Authority (BMA), as of December 2022, there were 159 licensed entities engaged in long-term commercial life insurance or reinsurance, marking a 7.4% increase from the previous year. Bermuda’s long-term commercial companies reported total assets nearing $1.07 trillion by the end of 2021.

Meanwhile, the Cayman International Monetary Authority (CIMA) noted 38 licensed international long-term life insurance or reinsurance companies in the fourth quarter of 2023, with their assets totaling almost $75 billion.

Marsh explains that life reinsurance brings several advantages, including capital optimization, which allows insurers to reduce liabilities on their balance sheets and reallocate capital more efficiently. It also provides risk mitigation by sharing risks with a reinsurer, thus offering a financial cushion for claim payments and demonstrating robust governance by integrating reinsurance into capital management strategies.