Asset-intensive reinsurance

In traditional life reinsurance, the reinsurer takes a share of the mortality or longevity risk, and the cedant keeps its assets. In asset-intensive reinsurance, the reinsurer takes over an entire block of annuities or savings contracts with the assets backing it, or controls their management through funds withheld and modified coinsurance arrangements. Its profit comes less from mortality than from the spread between the yield it earns on the assets and the rate promised to policyholders. This market has grown strongly since the 2010s, driven by reinsurers often based in Bermuda and linked to asset managers, which invest in private credit and higher-yielding illiquid assets. It lets ceding insurers free up capital and exit costly guarantees. It worries supervisors for three reasons: the transfer of assets to a jurisdiction whose capital and valuation requirements differ, the complexity and illiquidity of the assets, and counterparty concentration, so that a reinsurer failure would bring the liabilities back to the cedant at the worst moment. The UK prudential regulator warned in 2023 and 2024 about so-called funded reinsurance of bulk annuity buyouts, and Bermudian authorities tightened their valuation rules.