Capital-light reinsurance and sidecars in focus for life re/insurers: Goldman Sachs

The US life insurance and reinsurance marketplace is increasingly focused on setting-up capital light reinsurance structures, while there is also growing appetite for sidecar structures to support capacity as well, analysts at Goldman Sachs have reported.

After their last US conference, the Goldman Sachs equity analyst team highlighted commentary from major life players that suggests this focus on accessing reinsurance capital in an efficient manner, both as protection and as underwriting support, will continue in 2024.

We’ve seen a wave of life reinsurance start-ups in recent years, with Bermuda becoming home to many market-facing and internal life and annuity reinsurance firms established by major life insurance players.

At the same time, the use of the reinsurance sidecar structure to channel third-party investor capital into a business to support its life, annuity and pension related underwriting and risk transfer operations, is growing as well.

Just last year we reported on Reinsurance Group of America (RGA) launching a new Missouri-domiciled third-party life reinsurance sidecar company named Ruby Reinsurance Company (Ruby Re).

That was a prime example of a major life underwriting finding a way to bring third-party investor capital into its business, to support underwriting growth.

Previously we’ve seen, just in the last year or so, Kuvare setting up Kindley Re, Global Atlantic with its Ivy series of sidecars, Apollo and Athene with their ACRA sidecar structures, and investor Hildene Capital Management launching $1 billion reinsurer Ludlow Re.

While the structures and motivations can differ, these are all efforts to expand underwriting capacity in the life market, using efficient reinsurance structures that can either channel third-party money, or help an investor partner with a re/insurer.

It’s clear there is a strong attraction to the life and annuity space from the investor-side and we’re only just beginning to scratch this in a more ILS-style sidecar-like way.

At the Goldman Sachs conference, the analysts said that there was a continued focus from life insurers on balance-sheet optimisation and capital light structures.

Sizeable reinsurance transactions and offshore reinsurance structures are also in vogue, freeing up capital and enabling growth with more favourable capital treatment.

Interestingly, the analysts said that Metlife had discussed during the event that if the demand for pension risk transfer outpaced its own capital that is available to support that business, it would consider sidecars as a way to raise additional supportive capital.

That seems to be the mantra of many in the life insurance and reinsurance space, that establishing efficient capital structures and using third-party capital can help make their own capital go further, while also aiding in optimising their own balance-sheets.

From the investor-side, we know through our own discussions that investors are keen to partner with established and institutional-quality players in the life insurance and reinsurance space, with many of the investors we’ve spoken with saying there are multiple ways they’d consider this, with sidecar structures one that is increasingly appealing.

You can see information about many life reinsurance sidecars, alongside most collateralized P&C reinsurance sidecars, in our directory.