Ryan Stevens has recently moved into a new role as Vice President, Business Development, Global Financial Solutions (GFS) North America. He brings with him more than 20 years of actuarial experience, including 16 years at RGA in various pricing, structuring, and risk management roles, where he has consistently delivered results for RGA’s client partners.
In this Inside RGA Q&A, Ryan shares his view of the changing interest rate environment, the competitive landscape, and what sets RGA GFS apart.
The interest rate environment changed dramatically in 2022. What opportunities do rising interest rates provide to insurers?
The current interest rate environment presents a number of opportunities and potential pressure points for insurers. For example, insurers with high-guarantee interest products could benefit if interest rates remain at higher levels or continue to increase if they have adequate asset cashflows to reinvest at today’s higher rates. Yet it will take time for higher-rate reinvestments to have a meaningful impact on the overall portfolio yield. On the flip side, there is increased risk for insurers given credit spreads are often very volatile in this type of market, and we also have not seen the downside of a default cycle in many years.
Additionally, insurers are likely to see more attractive pricing on selling or reinsuring the block compared to the past few years. There may be a profit available to lock in and exit a block that used to be expensive and challenging to manage. The better pricing and offloading the increased disintermediation risk can make reinsurance very attractive in this environment. This risk occurs when rates on new products are more attractive than the rate insurers can achieve in their current product. Losses can occur if they have to sell assets at a loss to fund the extra surrenders. It has been a long time since we last witnessed a rising interest rate environment, so it will be interesting to see how well insurers’ expectations compare with actual policyholder behavior.
The asset-intensive reinsurance market has gone through the biggest change in competition over the last five years. The number of offshore and private equity-backed players has increased, driving media coverage and even letters and questions from U.S. Senators, and we’ve seen direct insurers looking to participate in block reinsurance or block acquisition solutions.
Winners are the direct insurers looking for reinsurance or block acquisition solutions. Today, it’s common for insurers to get bids from 15 or more reinsurers in early bidding rounds, compared to less than five in the not-so-distant past. This competition leads to a wide variety of pricing and counterparty risk for insurers to evaluate.
While pricing differences are easy to distinguish, and sometimes hard to resist, ceding companies need to carefully consider and understand the long-term counterparty risk they take in a reinsurance transaction. Key considerations, and questions to ask, include:
Underlying strength – Does the reinsurer have a diverse balance sheet?
Available additional collateral/security – Will the reinsurer be able to maintain over-collateralization in stressed scenarios?
Assets withheld – Will the investment strategy drastically change the insurer’s balance sheet?
Long-term commitment to the market – Will the reinsurer be able and willing to raise future capital to meet demands if needed?
Ability to honor the terms of the agreement – Will the reinsurer be able to meet all future obligations?
Partnership mindset – Does the counterparty have the capability and resources to execute the deal on their quoted terms and address any emerging issues on a mutually beneficial basis?
To me, what differentiates RGA and our GFS team is that we truly strive to understand each client’s specific capital and investment needs, and leverage knowledge of local markets and global best practices to deliver solutions that improve capital efficiency and promote long-term stability and growth. At RGA, we are guided by a fundamental purpose to make financial protection accessible to all. Every transaction is highly tailored to help clients achieve their objectives. Our goal is to help clients succeed and ultimately help deliver affordable products to insurance customers – my number one priority in this role. We want transactions to be a win-win-win situation for the client, insurance customer, and RGA.
Building on RGA GFS North America’s more than 30-year track record of execution certainty, our clients can count on RGA’s collaborative approach, ability to deliver on promises, and track record of executing transactions.
