Life Insurance: Putting Recent Trends and Developments Into Context

Over the past few years, the life and annuities sector has emerged from the COVID-19 pandemic into an era marked by significant structural change. Five years removed from the initial outbreak, we have witnessed a persisting “higher for longer” rate environment, record growth in annuity sales, continued convergence between life carriers and alternative asset managers, increasing popularity (and scrutiny) of offshore reinsurance, and robust M&A and capital markets activity catalyzed and influenced by a number of these structural trends and tailwinds. 

Despite a recent short-term downtick in rates, with the 10-year treasury sitting around 4.4%, new money yields continue to outpace portfolio yields for many insurers, providing a key tailwind to return on investment from higher investment yields and reduced tail risk on legacy blocks. Additionally, elevated rates have further supported the asset-intensive strategies of consolidator platforms with capital that can originate investments for insurance balance sheets, a trend we expect to continue as carriers seek to benefit from long-term investment manager relationships. 

The continued influx of aging Americans reaching retirement age (an estimated 11,000 to 12,000 Americans are reaching the age of 65 each day)¹ has driven record annuity sales over the past few years as competition has heated up among annuity writers to offer competitive rates to the marketplace in an elevated rate environment. 

While volumes may experience some degree of mean reversion (preliminary results from LIMRA’s sales survey suggest a 1% decline year-over-year of annuity sales in Q1 2025),² we expect that trends will vary at the product-level. For example, recent declines in fixed annuities (an 8% decline year-over-year in Q1 2025), driven by slower rate increases, has been offset by the proliferation of registered index-linked annuities (RILA) embedded with downside protections that protect policyholders in periods of volatility (a 21% increase year-over-year in Q1 2025). 

Additionally, a concerted effort is underway among large players to convert significant 401(k) deposits into annuity products, with several such strategic partnerships announced in recent months (BlackRock with Equitable³ and Brighthouse Financial,⁴ and Empower with Allianz⁵). 

Driven by a post-global financial crisis valuation rerating (capital intensive writers often traded high single digit or low double digit P/Es pre-crisis and now trade at about half that level), traditional life insurers have long sought to simplify toward more capital-light and/or fee-based business models. 

Resultingly, private consolidator platforms—often backed by alternative asset managers (Blackstone, Apollo, KKR, Sixth Street, Brookfield, Carlyle, Ares, and others) and with a more natural duration alignment against the liabilities that they write—have captured significant market share through a variety of M&A transactions and/or establishment of long-term partnerships. According to S&P Capital IQ, the total annuities direct premiums market share of private capital-backed platforms has more than doubled over the past decade, from 7% in 2015 to 16% in 2024. 

The formal relationships between traditional insurers and alternative asset managers have become increasingly diverse and creative, with a wide range of partnerships and transactions announced over the past few years, including  direct ownership (minority/majority by asset manager in insurance company, e.g., Apollo/Athene and KKR/Global Atlantic, and vice versa, e.g., Guardian/HPS) and/or sponsorship of off-balance sheet third-party capital vehicles (“sidecars,” e.g., Apollo/Athene’s ACRA and KKR/Global Atlantic’s Ivy structures), all of which typically include a formal investment management agreement (IMA) with a sponsor. 

The IMAs that underpin many of these relationships serve as a powerful currency in the context of pricing and negotiating M&A deals as participants seek to maximize value using a total returns approach. For asset managers, a long-term IMA further enhances their return on deployed capital, while carriers benefit from access to specialized alternative asset management expertise. 

As consolidators look to scale, we have seen a significant migration of liabilities to non-U.S. jurisdictions that offer additional flexible or economic reserving frameworks. According to Fitch, the percentage of U.S. statutory reserves ceded offshore has risen from just above 15% to approximately 35%, with a significant share of that growth attributable to unaffiliated reinsurance.  

In response to growing concerns around the implications of private capital involvement (especially from alternative asset manager-backed platforms), the National Association for Insurance Commissioners (NAIC) has proposed guidelines for ceding companies to submit proof of asset adequacy testing (AAT) via cash flow testing (CFT) in an effort to enhance transparency. 

Overall, we expect the introduction of AAT by the NAIC to be seen as a welcome piece of regulation that enhances transparency and legitimacy and validates rationales for conducting strategic reinsurance. 

Significant capital raising activity has been observed in the sidecar market, with structures continuing to evolve to meet sponsor and investor goals. After two notable announcements in late 2024 and early 2025 (Sconset Re and Chariot Re), things have been fairly quiet in the first half of the year, but there are a select number of insurers who have had success with previous sidecars that are seeking to launch successors with similar structures. Others are exploring new avenues and assessing various jurisdictions, opportunities for back-leverage, and other target liability classes. Many insurers that have not yet launched a sidecar have continued to observe the market and evaluate the opportunity in the context of their own reserves.  

Sponsoring a sidecar has become a differentiator for insurers in a competitive life and annuities market. Sponsor carriers benefit from on-demand capital, improved pricing (versus traditional flow reinsurance) and access to fee-based earnings for providing services to the vehicle. Investors tend to be asset managers seeking uncorrelated insurance returns without the burden of operating an insurance company. Typically, asset manager investors require a meaningful IMA for the life of the investment and underwrite to a total return approach, including projected asset management fees. 

M&A activity has continued its forward momentum. There have been several notable acquisitions of reinsurance platforms spanning the U.S. (JAB/Prosperity), Europe (consortium including Allianz, BlackRock, T&D/Viridium) and Bermuda (Nippon Life/Resolution Life). Future large transactions are possible if buyers and sellers are willing to align on valuation expectations in a volatile economic environment. 

One significant driver in M&A is the capital deployment that has come from Japanese life insurers into international opportunities to combat the effects of a shrinking domestic market. Many Japanese insurers already own or have announced acquisitions of international life entities, better enabling them to participate in the blocks market (Dai-Ichi/Protective, Nippon Life/Resolution Life and T&D/Fortitude Re). Others have made investments in U.S. platforms with attractive employee benefits businesses (Sumitomo/Symetra and Meiji Yasuda/StanCorp). 

From a blocks perspective, there has been a healthy marketplace for traditional life insurers to transfer legacy blocks to third parties. With a significant volume of traditional life and fixed annuities having already transacted, the market has turned to more complex liabilities, including some that were not previously considered transactable, such as variable annuities, universal life with secondary guarantee, structured settlements and long-term care. 

Complementing the investment demand from Japan is a significant supply of “reinsurable” whole life and annuities liabilities with meaningful spread return potential. The large aggregator platforms have been active in assuming blocks of business across Japan and other mature Asia markets, such as Hong Kong, Singapore and South Korea, with Athene, Fortitude Re, Resolution Life, Global Atlantic, RGA and Talcott notably participating in such transactions. Additional reinsurance opportunities for liabilities in Asia exist in the flow insurance market. 

While frequency of large case pension risk transfer (PRT) transactions has been muted due to ongoing litigations against plan sponsors alleging that the deals are risky in nature and do not align with the fiduciary duty of the plan (Verizon and Bristol-Myers Squibb), overall activity has been sustained by smaller, episodic deals. The continued shift from defined benefit to defined contribution plans acts as a long-term driver of activity in the foreseeable future. 

On the funding agreement-backed notes (FABN) front, markets are on pace for another record year of issuance as insurers seek solutions that provide liquidity. As of May 31, 23 unique issuers (+8 year-over-year) have priced over $32 billion in primary supply (up 5% year-over-year) across six different currencies. Despite ongoing global market volatility and geopolitical headwinds, investment grade credit has remained resilient, and FABN supply has continued to price efficiently as the buy-side has demonstrated the ability to digest the increasing volume from the sector.  

Over the past month, U.S. dollar FABN issuers have seen meaningfully oversubscribed order books, placing downward pressure on new issue concessions. We expect the pace of supply across currencies, including the Canadian  dollar and the British pound, to persist as robust asset origination opportunities and growth in various segments of the market—coupled with favorable funding conditions—make the institutional product increasingly attractive for many clients. 

The life and annuities industry continues to grow rapidly through an ever-changing economic and geopolitical backdrop. Private markets continue to search for insurance capital to implement asset intensive strategies while traditional market participants continue to seek capital efficiency solutions and provide customers with innovative, value-add products and services amid shifting global demographics. 

For more information or a deeper discussion of industry trends, please contact your BMO Investment Banking representative. 

_{1 Yahoo Finance, April 19, 2024, “Over 12,000 Americans Will Turn 65 Every Day in 2024. Are You Ready For Retirement?”} 

_{2 LIMRA, April 29, 2025, “Preliminary U.S. Annuity Sales Top $105 Billion in First Quarter 2025”} 

_{3 Equitable, April 24, 2024, “Equitable supports BlackRock as it makes LifePath Paycheck™ available to more American workers”} 

_{4 Brighthouse Financial, April 24, 2024, “Brighthouse Financial Joins BlackRock in Announcing LifePath Paycheck”} 

_{5 Business Wire, December 4, 2024, “Allianz Life Partners with Empower to Offer First Fixed Index Annuity on its Platform”}