Private Equity and Life Insurers in Japan
The International Monetary Fund published a Global Financial Stability Note on December 19, 2023, that studied the growing trend of private equity (PE) investments into the life insurance industry.
PE companies’ investments in life insurers are integral to their strategic growth as PE firms evolve beyond the traditional leveraged buyout transaction to acquire diverse businesses across private credit, structured credit, private real estate funds, and private infrastructure funds.
The IMF note reviewed the growth in PE investments through the lens of the diverse acquisition incentives and strategies, the consequent changes to asset allocation and investment strategies of the acquired life businesses, and potential prudential and policy implications.
This note was picked up by the Wall Street Journal in an article titled “Private Equity’s Move Into Insurance Provokes Systemic-Risk Concerns” on January 4, 2024. Previously, Brendan Ballou had dedicated a whole chapter of his acclaimed book “Plunder: Private Equity’s Plan to Pillage America”, published in May 2023, to the role of PE firms in insurance.
More recently, Insurance group Zurich’s sale of a $20bn life insurance book to Viridium has collapsed, with the private equity-backed German consolidator citing “considerations relating to [its] current ownership structure” as regulatory scrutiny of such deals intensifies, as the Financial Times reported on January 30, 2024.
Resolution Life announces its first flow reinsurance partnership in Japan
Today, Resolution Life, a global manager of in-force life and annuity policies, announced that its Bermudian reinsurance platform, Resolution Re, has entered into a flow reinsurance agreement with a Japanese insurer.
The transaction is the first flow reinsurance arrangement for the cedant and aims to provide increased capacity and greater product competitiveness, enhancing the offering to the cedant’s fixed annuity policyholders.
This is a solution that Resolution Life is well placed to scale further in response to the needs of the primary life insurance industry in both Asia and the U.S. This is in addition to the company’s current capabilities in block reinsurance and M&A transactions.
As Resolution Life’s second transaction in Japan following a reinsurance agreement with Dai-Ichi Life in 2022, it further extends the business’ commitment to Asia more broadly, which remains a core market for future growth.
In October 2023, Resolution Life and Blackstone announced the close of their $3bn equity capital raise and that all regulatory approvals have now been received for their strategic partnership.
The enhanced capital base was intended to help Resolution Life to rapidly scale its growth path in a highly active acquisition market — continuing its mission of being a global custodian to life insurance and annuity policyholders. Resolution Life remained Group-regulated by the Bermuda Monetary Authority.
At the same time, Blackstone started to serve as the General Partner for all new investors as well as existing Resolution Life investors who rolled their commitments. New capital came from a range of global investors and includes a $500m strategic investment from Blackstone as well as an additional over $1bn investment from Nippon Life and other existing Resolution Life investors. The $3 billion in new equity raised brought the company’s overall equity capital base to approximately $8 billion.
Private equity-backed reinsurers expand into Asia’s life market
In a note published on January 22, 2024, S&P Global examined private equity-backed reinsurers’ interest in Asia-based life insurers, and came up with a list of transactions that is heavily Japan-dominated.
S&P Global reports that relative to previous years, 2023 was an active year for risk transfer deals involving life insurers based in Asia.
The most recent deal was an approximately $4 billion agreement between Global Atlantic and Manulife Life Insurance Co., one of the largest reinsurance block transactions in the region. The transaction is reportedly part of a broader $10 billion reinsurance agreement between the companies and is expected to close in the first half of 2024.
Japan was also the location of a recent deal between Apollo Global Management Inc.-backed Athene Holding Ltd. and FWD Life Insurance Co. Ltd., the former’s inaugural block reinsurance deal in the region
As these transactions grow in number and size, will the FSA step in once a certain threshold is reached and the regulators starts feeling uncomfortable in its ability to protect policyholders? After all, if the reported total deal value for Manulife is correct, then it has already reached about half the size of the just-aborted Zurich transaction.
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