What defines a good life re/insurance investor?
A true investor in the life re/insurance space should be defined by the intent, quality and permanence of their capital. That is how Amy Ponnampalam, CEO of Athora Life Re, described the credentials of a “true investor” to delegates at the Bermuda Risk Summit.
Asked if she had a preference, when passing on risk, for investment backed by a purely financial player or by another reinsurer, Ponnampalam said the “badge” the investor wore wasn’t important.
“One of our key investors at Athora is Apollo [Asset Management Europe], which is traditionally seen as a global asset manager, and it very recently merged with the team. Their identity as an investor has now changed but nothing has really in substance,” she said.
“Even though you may have institutions who are deemed to be asset managers, supporting a backend life business, if it’s still permanent capital, and you’re still bringing insurance expertise to the running of these businesses, then it doesn’t really matter about the badge of the investor.
“It’s to do with intent, the quality and the permanence of the capital. Expertise as well is very important. The life business is very long, we’re signing contracts for 40 to 50 years, and so having a very strong, credible backer is incredibly important.”
Private equity is sometimes mischaracterised, she said.
“I do genuinely believe there are a lot of PE players out there who support the life insurance business with very strong intentions that are for the good of the industry, but I think it’s quite easy to characterise PE as, sort of, cowboy short-termism. That really isn’t the case if we look at how PE backers have supported the life industry, particularly in Bermuda.”
Martin Spit, partner at EY USA, said that was fair comment. “The game is changing in the underlying market. Over the last decade, more than 5% of the total balance sheet has moved into alternatives. Primary carriers, reinsurance carriers, need to tap into different asset management capabilities to drive the yields. The problem is that, if you don’t drive the appropriate yield, you can’t put a market competitive price on the table. It’s a gamechanger in the entire industry, and I think private equity, private-backed teams, have been the first to the table with more competitive pricing based on some of the better yields that they’re driving. You have to look for more alternatives if you run large book of life insurers and reinsurers.”
Nicola Hallett, director of Captive & Commercial Insurance at Artex, said that, on the incorporation side, Bermuda had seen a mix of investors. “There are the big US and Asian insurance companies that are transferring, it’s almost like affiliated reinsurance, but – and it’s been made public – there have been recent formations that are private equity-backed.”
Brad Adderley, office managing partner & head of corporate at Appleby Bermuda, said that, when Bermuda sees the private equity-backed life reinsurers, there is the perception, at least to the BMA, of whether those companies have the life re/insurance expertise.
“Secondly, is their investment policy going to be more aggressive than the normal life reinsurer. I’m not saying they won’t get approval from the BMA, but if you have a PE with a specialty focus on certain types of investments, then the BMA might ask what’s going on there. When we see the new formations, you could ask, you’re an investment house, who is going to do the actuarial investment work? There might be more stress testing to make sure you meet the relevant standard.”
Ponnampalam said that Bermuda’s Economic Balance Sheet framework supports a well-diversified life re/insurance company.
One of the key differentiators between the life business and the P&C business, she said, is that the former is “so long term”, which means there is “genuine value to be had in investing in illiquid assets, which do give you some spread pickup, maybe higher interest rates, and that is ultimately to the benefit of policyholders.” To do that in a safe, well-governed way, however, is where life re/insurers play a very important role. “The BMA framework is set there to challenge us and hold us to the standard that’s needed,” she added.