Guardian Picks Talcott to Reinsure $7.4B in Variable Annuities

Some other companies in its position have acquired dental insurers, vision benefits companies and companies that try to get people to do more to maintain and improve their health, in an effort to benefit from their understanding of health and risk without requiring the high levels of capital some types of life insurance, annuity, long-term disability insurance and long-term care insurance products require.

The 'Great Restructuring'

Because of concerns about equity-related investment risk, U.S. annuity issuers tend to rely heavily on investments in high-grade corporate bonds and other interest-sensitive assets, such as mortgages and mortgage-backed securities.

Interest rates have begun snapping back up in recent months but had been at very low levels for years before that.

Meanwhile, accounting regulators in Europe and the United States responded to the Great Recession by adopting rules that will require life insurers to put more of the changes in the value of long-term asset liabilities in current earnings.

Pressure from low investment returns and tough accounting transparency rules has been pushing U.S. companies to find ways to distance themselves from some types of life and annuity operations since at least 2017, when Sean Dargan, a securities analyst at Wells Fargo & Co., said the companies were embarking on a "Great Restructuring" of the life insurance industry.

Talcott itself has reinsured business with about $50 billion in assets since 2021, according to Talcott.

The list of other companies that have reinsured business with Talcott also includes Allianz Life, Principal Financial Group and Lincoln Financial Group.

Moody's Commentary

Analysts have been asking how investment market turmoil will affect annuity deal hunger.

Bob Garofalo and other analysts at Moody's Investors Service recently suggested in a review of  U.S. life insurance mergers and acquisitions that life insurers' hunger for reinsurance deals, and investment firms' need to invest large amounts of cash, could continue to add heat to life M&A activity, but that a weaker economy and some regulators' wariness of the deals could add cold water.

The Moody's team expressed mixed feelings about the deals' impact on the annuity holders.

The deals tend to be good for the sellers, "but less so for policyholders transferred to weaker third parties, although effects vary depending on the structure of the transaction," the analysts write.

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