With its disparate markets, diverse business practises and a plethora of cultures, Europe is hard to pin down to a single life reinsurance standard. Deal volume on the continent has been thin and publicly announced deals sporadic so far. But a few recent announcements could indicate an uptick in business.
And this is something regulators are keeping an eye on. Dieter Hendrickx, who is both head of insurance supervision at the National Bank of Belgium (NBB) and chair of the IAIS Monitoring and Risk Assessment Committee, has been following the growth of asset intensive reinsurance on the international stage for some years now. While volumes have boomed in the US and Japan, this particular business remains dispersed across Europe.
“If you look at the European continent as a whole, you may say the asset intensive reinsurance market is not so big, and I would agree, but if you look at countries individually, there are some countries where asset intensive reinsurance is more prominent than others,” he says. “The message we get from the industry is this is a growing trend across the globe. Industry tells us we can expect them to invest more in alternative assets, and that we can expect them to use these asset intensive structures. So it’s on our agenda taking a bit of a forward looking view.”
Given the shift and increased scrutiny on life markets more broadly, Hendrickx says that asset intensive reinsurance is in the top three things the IAIS is currently monitoring, and has been looking at for the last four to five years.
“First of all we are trying to understand what can sometimes be very complex structures involved in these deals,” he says. “It is a learning curve. As supervisors we have to go through the data that we gather and the discussions that we have [which] really help advance our common understanding of the topic.”
The question for regulators is whether or not they have a good grasp of the risks involved in life reinsurance. And, if not, how do they coordinate themselves to ensure they do in the disparate European markets when it comes down to newer reinsurance techniques. One of the challenges with regard to that is around data. For one, the influx of alternative assets into the life business via initiatives like asset intensive reinsurance – and the oftentimes complicated business structures these deals evolve from – is challenging to monitor. It can mean the deals are almost required to be looked at on an individual basis.
“We have data, but it can always be improved,” says Hendrickx. “And that’s also the message you get from the industry. They acknowledge that the sharing of the data is important to get that transparency. The supervisory measures being issued related to these structural shifts are not necessarily the same everywhere, which can be okay because there are differences between the markets – but at least we need to be sure about it and understand and talk to each other.”
In some ways, Europe’s regulators have been more stringent in their oversight and attitude to the life insurance business than other jurisdictions. This is not without good reason. Europe’s life insurance sector has been burnt in the not-so-distant past, particularly with the Cinven-Eurovita episode of 2023. Meanwhile the increased volumes of money being poured into alternative assets by insurance private equity owners, could be a worry, given the apparent time horizon mismatches that exist between the two business types, participants argue. There is also the ownership structure issue behind much of the new business.
“You have to look at the ownership structure and try to understand all of that,” says Hendrickx. “In the end it is the insurer who remains responsible for its investment policy. And it is also when there could be a conflict of interest in terms of which investment structure to choose between the insured and the owner of the insurer.”
So regulation is needed. But how much? And is there a danger of stifling innovation with this approach? Hendrickx says that is not the regulators’ intention.
“Sometimes we get the message – for example, with the [2025] issues paper – ‘you’re not going to impose too many restrictions.’ For us, it’s about understanding and having the measures available when needed. There may be some individual transactions which are considered to be too risky – but the idea is not to stop the entire reinsurance market behind it. This market has many benefits. What you want is that they understand what they’re doing.”
It is clear that life reinsurance will continue to be one of the main points of focus for the IAIS in the near future. But there are other branches to it. Last year, the authority published a global insurance market report which had a focused section on private credit, one of the alternative assets that sparked attention from supervisors. For the future, the body will be looking to see whether it needs to tweak some of the supervisory standards.
“Is there a need for more supervisory guidance, for sharing our best practices?” says Hendrickx “It will remain high on our agenda. And, that is particularly important if the message we get from the sector is we attempt to continue to grow.”
“We have data, but it can always be improved…
And that’s also the message you get from the industry.”
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