In the midst of a dynamic financial environment marked by soaring interest rates, reinsurance is emerging as a key ally for life insurers, offering innovative solutions to effectively manage the impact on their businesses, according to a Swiss Re Institute report.
The current high-interest rate landscape, while presenting opportunities, also brings about notable challenges for life insurers, particularly in terms of fixed-income holdings and potential solvency and liquidity constraints.
According to a recent sigma report by Swiss Re Institute, titled “Risks on the rise as headwinds blow stronger: global economic and insurance market outlook 2024‒25,” higher interest rates are forecasted to contribute to a 2.3% average growth in life premiums for 2024‒25.
While these rates enhance demand for savings-type products and support bulk annuity transfers, they concurrently expose life insurers to challenges in managing fixed-income portfolios.
Swiss Re emphasises the critical role of reinsurance as a well-recognised and established capital management tool in these challenging times.
Reinsurers, such as Swiss Re, offer a holistic approach by addressing both asset and liability needs simultaneously. This strategic partnership allows life insurers to tackle volatility in financial and technical results, gain capital relief, and generate additional liquidity.
Swiss Re has provided significant longevity capacity as part of a longevity swap, reducing a Dutch client’s exposure to longevity risk and fortifying its capital position, according to the report.
Participation in the largest mass lapse transaction in Italy showcases Swiss Re’s commitment to supporting a key client in capital and liquidity management.
A structured financing deal enables a European life insurer to monetise the value-of-in-force business, tailored to meet liquidity needs in anticipation of an imminent acquisition.
Swiss Re has successfully de-risked a complex Guaranteed Minimum Death Benefit (GMDB) exposure for a major French life insurer, reducing profit-and-loss volatility and releasing technical provisions.
The development of a new unit-linked savings proposition in Germany, featuring customer-friendly embedded guarantees, positions an insurer to offer cutting-edge products in a competitive market, the report noted.
