Life/annuity reinsurers see improved conditions amidst higher rates

L/A reinsurers remain well-capitalised until 2025.

Whilst higher interest rates and favourable mortality trends have improved conditions for life/annuity (L/A) reinsurance companies, these factors have also intensified competition, according to AM Best. 

New capital is flowing into the L/A reinsurance sector, primarily from reinsurers owned by investment managers focused on the annuity business, the agency’s report, titled “Life/Annuity Reinsurers Face Growing Competition as Conditions Improve,” said. 

These new entrants are leveraging their investment expertise to roll transferred assets into high-yielding positions, primarily in fixed-income products. They also offer attractive ceding commissions based on anticipated higher investment returns.

L/A reinsurers remain well-capitalised, with risk-adjusted capitalisation expected to stay healthy through 2025, despite ongoing risks in investment portfolios and elevated mortality rates for some. 

Reinsurers owned by asset managers are particularly comfortable taking on investment risks, drawing on their parent companies' experience in structured products, mortgages, and private credit.

The trend of annuity growth is likely to continue, with more companies looking to reinsurers to manage growth and capital levels. The market remains competitive, with new company formations, partnerships, and private capital increasing the share of business ceded to affiliates and third-party reinsurers.