Asset-intensive reinsurance (AIR) is expanding globally, with activity still concentrated in the US, while transactions gain momentum in the Asia-Pacific, the UK, and Europe, according to PwC.
AIR refers to reinsurance transactions of insurance products—typically long-duration life and annuity products—where both asset and insurance risks are transferred from the cedent to a reinsurer. Unlike traditional biometric reinsurance, which primarily covers mortality or morbidity risk, AIR supports liabilities backed by significant assets, and the performance of those assets relative to liabilities is a key driver of overall results.
PwC noted that AIR is becoming increasingly popular because it can generate strong investment returns relative to liabilities, improve asset-liability and liquidity management, and enhance capital deployment. AIR transactions can also help ceding insurers strengthen policyholder offerings and boost financial performance.
Factors driving AIR’s growth over the past decade include the shift from public to private ownership among insurers, the increase of hybrid asset managers/reinsurers, and the growth of private credit—all of which pursue investment-led insurance strategies to generate attractive risk-adjusted returns and support long-term liability management.
In the Asia-Pacific region, AIR transactions have risen significantly in Japan, with South Korea, Hong Kong, and Singapore also seeing increased activity. There have also been some transactions in the UK and continental Europe, though future growth will depend on local and regional regulatory developments.
PwC cautioned that participating in these markets requires a deep understanding of the business, political, economic, regulatory, tax, and operational environments in each country and region.
The AIR marketplace is also becoming more competitive. Asset manager and re/insurer partnerships have strengthened existing players’ capabilities and introduced numerous new entrants.
“In addition, the continued growth in sidecars is enhancing access to capital for asset intensive reinsurers that sponsor sidecars, and sidecars sponsored by direct writers have taken many potential transactions off the market. Moreover, demand for private capital and changes in investors’ desired cost of capital are further altering AIR market contours,” said PwC
As the market grows, block reinsurance transactions have expanded beyond basic annuity products to include more complex liabilities, such as life, universal life with secondary guarantees, long-term care, disability income, and variable annuities.
These more complex liability types are often combined with other types of liabilities in a single transaction, requiring advanced modelling and hedging capabilities. As a result, leading AIR players are expanding their modelling, risk management, and technology capabilities.
Given this growing complexity, asset-intensive reinsurers are increasingly partnering with traditional reinsurers to offload biometric and policyholder behaviour risks. In these arrangements, the asset-intensive reinsurer retains investment, ALM, and liquidity risks, while the traditional reinsurer assumes the insurance risks—allowing each party to focus on the risks it specialises in.
PwC continued, “In addition to block reinsurance transactions, programmatic “flow” reinsurance transactions are increasing. These transactions involve new policies written by direct writers that are reinsured to a reinsurer on an ongoing basis.
“Flow reinsurance transactions provide cedants with consistent reinsurance capacity and give them the ability to enhance policyholder offerings through new product offerings and/or enhanced crediting rates. Reinsurers meanwhile benefit from periodic capital deployment, which can aid growth and diversification relative to closed blocks. In addition, flow reinsurance transactions generally have shorter execution cycles and lower transaction costs relative to block reinsurance transactions.”
