Funded reinsurance as a divestment tool for life insurance books with financial guarantees

A decade of low interest rates and the implementation of Solvency II prompted European life insurers to shift their business from traditional life insurance policies with minimum guarantees to capital-light, unit-linked, and protection businesses. This structural change created a demand for divestments of traditional saving products with financial guarantees. This paper discusses the economic and regulatory aspects of divestment strategies, including traditional portfolio transfer and legal entity sales. It also explains and analyzes funded reinsurance, which is an emerging divestment strategy where reinsurers assume the risks and rewards of a portfolio of life insurance or annuity contracts. We assess and compare the impact of divestment strategies from the perspective of different stakeholders, such as policyholders, shareholders, and regulators.