$400M Kuvare vehicle caps banner year for new Bermuda reinsurer registrations

New insurer and reinsurer registrations logged by the Bermuda Monetary Authority hit their highest level in nine years in 2022, fueled in part by the ongoing transformation of traditional life and annuity company business models in the United States and beyond.

Among the at least 80 registrations in 2022, several of the more recognizable names represent new reinsurance arms of existing U.S. and U.K. insurers. Others may facilitate the expansion of their sponsors' existing capabilities around aggregating life and/or annuity liabilities.

The total number of registrations marked an increase from 67 and 64 in 2020 and 2021, respectively, and an average of 59 per year from 2007 through 2021. Activity peaked during that stretch in 2013 at 91 registrations, more than 56.0% of which were classified as special-purpose insurers at a time of rapid expansion of the insurance-linked securities market. Special-purpose insurers again served as the focal point of new registrations in 2022, but they accounted for only 29.6% of the total as there was more balance across the various categories of company types.

Active registrations show continued appetite among prospective cedants to consider more capital-efficient solutions for in-force blocks of business at a time the National Association of Insurance Commissioners faces a call from at least one prominent U.S. carrier to rein in the use of offshore reinsurance.

One of the last registrations the BMA logged in 2022 could rank among the year's most significant transactions. On Dec. 28, 2022, Kindley Re Ltd. registered as a Class E company, which the BMA defines as a long-term insurer or reinsurer with total assets of more than $500 million.

Kuvare Holdings LP, the ultimate parent of Guaranty Income Life Insurance Co. and Lincoln Benefit Life Co., revealed on Jan. 12 that it and global investment manager Davidson Kempner Capital Management LLC had partnered on the formation of Kindley Re. The new reinsurer will coinvest at least $400 million with Kuvare in qualifying life insurance and annuity transactions, including flow and block reinsurance deals, generated by Kuvare's insurance operating companies. Certain entities and investment funds managed or advised by Davidson Kempner provided the initial equity capital commitment.

Kuvare's asset management subsidiary will serve as Kindley Re's investment manager with Davidson Kempner providing support for selected investment-grade-focused asset classes.

Peers Global Atlantic Financial Group Ltd. and Athene Holding Ltd. previously formed Bermuda coinvestment vehicles as a way to enhance their flexibility in the pursuit of various inorganic growth opportunities. Among the new registrations in 2022 were Athene Co-Invest Reinsurance Affiliate 2A Ltd., Athene Co-Invest Reinsurance Affiliate 2B Ltd., and the second of two Ivy Re vehicles tied to Global Atlantic.

Kuvare in 2020 established Kuvare Bermuda Re Ltd. as a Class C reinsurer focused on affiliated reinsurance, and it subsequently entered funds withheld coinsurance agreements with Guaranty Income Life, Lincoln Benefit Life and United Life Insurance Co. covering various fixed annuity business.

Other recent Class C or Class E BMA registrants included Neptune Reinsurance Ltd., Symetra Bermuda Re Ltd. and Phoenix Re Ltd.

Investors Heritage Life Insurance Co. listed Neptune Re on its Sept. 30, 2022, organizational chart as both being under the ultimate control of affiliates of Aquarian Holdings LLC, an entity that recently closed on its acquisition of a controlling interest in Bermudian life and annuity reinsurer Somerset Reinsurance Ltd.

Symetra Financial Corp. said in December 2022 that it launched the new Bermuda reinsurer as a way to ensure the long-term competitiveness of the company's retirement division. Symetra Bermuda Re has reinsured on an 80% quota-share basis fixed deferred and fixed indexed annuities issued by Symetra Life Insurance Co. on and after Jan. 1, 2022.

London-based Phoenix Group Holdings PLC principally formed Phoenix Re as a way "to consolidate all of our annuity books into a single place," said Tom Ground, managing director of the retirement services unit, during a December 2022 investor day.

Earlier in 2022, the newly formed AeBe ISA Ltd. attracted attention by striking an agreement with American Equity Investment Life Holding Co. to cede $4.3 billion of certain in-force fixed indexed and fixed-rate annuities. AeBe Ltd. is a Class E reinsurer affiliated with multiclass investment platform 26North Partners LP.

New Bermudian companies in 2022 also included entities linked to Aflac Inc., Kemper Corp., Mutual of America Insurance Co., Wilton Re Ltd. and The Carlyle Group Inc.'s Fortitude Group Holdings LLC.

The prospective expansion of the use of affiliated and unaffiliated offshore reinsurance vehicles based in Bermuda and other domiciles figures to be a focus of attention not only among prospective counterparties but state insurance regulators as well.

According to the minutes of the December 2022 meeting of the National Association of Insurance Commissioners' Financial Stability Task Force, the Macroprudential Working Group has been conducting "confidential discussions with industry participants and other jurisdictions regarding the use of offshore reinsurers and complex affiliated reinsurance vehicles" in search of the best way to ensure that regulators can identify the true economic impacts of those kinds of transactions.

The Northwestern Mutual Life Insurance Co. notably expressed concern about the expanding use of offshore reinsurance on an industrywide basis in a series of comment letters to the NAIC. In June 2022, for example, the company cautioned that offshore reinsurance "can ... result in lower total reserves and capital, reduced state regulatory oversight, and diminished stakeholder transparency" from what the NAIC would otherwise require under its statutory accounting and risk-based capital frameworks.

The future of offshore reinsurance will be one of the topics discussed on the upcoming S&P Global Market Intelligence webinar, Regulatory Challenges for U.S. Insurers, to be held Feb. 7. Find more information about and register for the event here.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.