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Warren Buffett backs Partners Life

Partners Life has increased its reinsurance capacity with the addition of two new partners to its treaty with French company SCOR. The two new funders are Warren Buffett's Berkshire Hathaway and reinsurer PartnerRe. Here is the statement from Partners Life.

Tuesday, August 6th 2013, 11:33AM 15 Comments

Partners Life has added Berkshire Hathaway and PartnerRe as retrocessionnaires to the SCOR reinsurance treaty.  

The introduction of Berkshire Hathaway and PartnerRe further increases SCOR’s capacity to provide the reinsurance requirements for Partners Life’s rapidly growing business well into the future, whilst continuing the very close relationship Partners Life has always had with SCOR. 

SCOR has been Partners Life reinsurance partner since inception in 2010, supporting its development as New Zealand’s fastest growing life business, providing fresh and innovative solutions for the financial and insurance needs of New Zealanders. This partnership has been highly successful, reflecting the strong relationship between the two teams.  



“We are very pleased to welcome these two substantial partners as supporters of our reinsurance treaty with SCOR”, says Naomi Ballantyne, Managing Director of Partners Life.  “This arrangement further increases our reinsurance capacity, which is important given our unprecedented growth since inception only two years ago and our expected continued growth into the future.  At the same time it allows us to maintain our key relationship with SCOR, who remain our principal treaty partner. ”

Sean Kam, Chief Financial Officer of Partners Life says “the introduction of Berkshire Hathaway and PartnerRe into the SCOR treaty is a testament to the substantial company Partners Life has become in a very short period of time and the international reputation in the insurance industry of the Partners Life management team”.

“To have three of the most substantial global reinsurance companies working collectively to provide us with reinsurance support, allows us to focus firmly on our future, which we are very excited about.”

Berkshire Hathaway Reinsurance (Ireland) Limited, domiciled in Dublin, is the European life reinsurance vehicle of the Berkshire Hathaway Reinsurance Group which in turn is part of the Berkshire Hathaway Inc. Group of companies run by Chairman and CEO Warren Buffett.

Berkshire Hathaway and its subsidiaries engage in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services. 

The insurance business activities of Berkshire Hathaway are conducted through approximately 70 domestic and internationally-based insurance and reinsurance companies. These businesses provide property and casualty insurance in the United States as well as property and casualty, life, accident and health reinsurance globally. Berkshire Hathaway is renowned for the exceptionally high overall levels of capital held in its insurance companies.

Partner Reinsurance SE is the European reinsurance subsidiary of PartnerRe, domiciled in Dublin.

PartnerRe is a leading global reinsurer with the capital and the capabilities in virtually every risk class and every geographic region to offer secure, customized solutions, responsive to its clients’ needs. For the year ended December 31, 2012, total revenues were $5.6 billion. At June 30, 2013, total assets were $22.6 billion, total capital was $7.2 billion and total shareholders’ equity attributable to PartnerRe was $6.4 billion. PartnerRe has Financial Strength Ratings of A+ (A.M. Best and Standard & Poors), A1 (Moody’s) and AA- (Fitch).

A top-five global reinsurer, SCOR has a balanced business model, with three powerful engines: SCOR Global Life (Life reinsurance), SCOR Global P&C (Non-Life reinsurance) and SCOR Global Investments (asset management). With  premium income of  over 13 billion USD expected in 2013, SCOR continues to reinforce  its position as a leading global reinsurer and the added value it brings to its clients through its 37 offices worldwide.  SCOR has total assets of $24 billion USD, and Financial Strength Ratings of A+ (Standard & Poors, Fitch and AM Best Issuer Credit) and A1 (Moody’s). The business is optimally positioned to offer innovative solutions, focusing on long term partnerships with clients, through its strong local operations supported by global centres of excellence.

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Comments from our readers

On 6 August 2013 at 12:08 pm Bruce said:
Fantastic - maybe this will at last silence all those negative doom merchant Brokers who not having an agency with PartnersLife, have tried every-which-way to bad mouth them.
On 6 August 2013 at 12:10 pm Dr Mike Naylor said:
Congratulations to PartnersLife for obtaining such useful backing. Once the details are released this should reassure those in the industry worried about PartnersLife's financial stability.
What PartnersLife needs to do now is start to adjust to a more sustainable long-term policy setup by lowering the unsustainable upfront commissions which are causing such a drain on their cash-flow and worries at the RBNZ.
On 6 August 2013 at 12:33 pm billy the broker said:
Won't be long before they go on the market then eh Bruce..!!Time will tell mate..
On 6 August 2013 at 12:38 pm Analyst said:
From strength to strength. Well done Partners Life!
On 6 August 2013 at 1:49 pm Don Keedik said:
Congratulations to the team at Partnerslife for the phenomenal success you have had so far... I can't wait to see what will come next : )
On 6 August 2013 at 1:49 pm DonKeedik said:
Congratulations to the team at Partnerslife for the phenomenal success you have had so far... I can't wait to see what will come next : )
On 6 August 2013 at 2:29 pm The German said:
I'm an experienced adviser been in the insurance industry for a long time and a reasonable producer who deals with all the mainstream providers and from what I can see, and have been told from my fellow advisers, PartnersLife's remuneration is about in the middle of the pack and by no means are they paying the highest commission in the market place. I would suggest Dr Nayler you concentrate on some of the bank owned insurance companies and what their offering in the market place!!!
On 6 August 2013 at 4:12 pm Dr Mike Naylor said:
Amused & German- I wasn't commenting on the quality of the Team at Partners Life or their products - the products seem excellent.

Berkshire Hathaway is a smart operator and their agreement to tie up is a feather in the cap for Partners Life, as I said.

However it is no coincidence that PartnersLife have expanded their range of backers, as they were looking light in capital under the new

Solvency rules being imposed by the RBNZ, and there have been discussions around this.

The problem for a startup in NZ is that the high upfronts mean that every single sale of new policies require PartnersLife to pay out more than they get back in year one premiums. Thus there is a cash drain for the first 4 to 6 years until a better balance is achieved between old and new policies. The way PartnersLife overcame this was to do a deal with SCOR to inject cash - which is not strictly "reinsurance".

The cash drain also prevents the company from building up the growing reserves required by the RBNZ to underlie the policies issued. The RBNZ has started to take an interest in this - hence PartnersLife being proactive and seeking new financial backup. Though I would like to see if the new deals are actual reinsurance or another cash deal (I assume the deals will ensure RBNZ rules are meet?)
The general point is that high upfronts (compared to international) make it hard for new firms to enter, which is made more difficult by the new solvency rules.

Amused & German- all the above is well known to those who read these pages, so I didn't spell it out. Nor are they negative comments. I would like to see it made easier for new, innovative, firms to start. After all Naomi and her team have done a lot to improve the market over time. What do you want?

EDITOR'S NOTE: Amused comments were post-moderated and removed.
On 6 August 2013 at 6:37 pm Pragmatic said:
Correct me if I'm wrong, doesn't this just mean that SCOR are passing on some of their risk to the 2 named reinsurers. Partners Life treaty is with SCOR and they need to maintain their reinsurance obligations with them not with the Retrocessionaires. As the press release says, it increases SCOR's capacity, as if it didn't have enough capacity for a start up company in NZ.
On 7 August 2013 at 12:18 pm Confused said:
I am confused, how does gaining suppliers strengthen your credit rating Dr Naylor? It may be that the suppliers feel comfortable... but an insurer has to stand on its own feet... it would be like Hanover saying they bank with ASB, so what?
On 7 August 2013 at 12:43 pm Mike said:
What a spoil-sport Pragmatic. Where's the fun in delving behind the headline to the REAL impact of what occurred here? Surely it's more fun to suggest the Oracle of Omaha has taken a personal interest in Partners Life and then invested in the company. I'll go look for Berkshire Hathaway on the share register. Back in a minute.....
On 8 August 2013 at 8:09 am reality said:
Buffet's backing them? I'd rather put money on the next prize fighters at conference in Hollywood.
On 8 August 2013 at 11:24 am Dr Mike Naylor said:
For those not aware - There are new RBNZ regulations around required capital and/or reinsurance for insurance companies. Partners Life has acknowledged that while they meet current regs they would have trouble meeting the new regs. The issue is that for every new policy Partners Life issues they need a set percentage of additional capital or additional reinsurance.

The problem for Partners Life is that because they pay high upfronts (high internationally) they pay out more in commissions and admin costs for each new policy then they receive in first year (or 2nd year) premiums. This causes a continual cash drain until the ratio of mature to new policies stabilises.

Thus Partners Life did a deal for SCOR to provide a cash input during the initial period in exchange for payments in the long term. Partners Life calls this "reinsurance" but indications are that it has not been accepted as such by RBNZ, and thus there are questions around Partners Life's capital base.

Hence the deals with Berkshire Hathaway and PartnerRe. Since these are deals with SCOR (not direct) they only impact on Partners Life to the extent that they allow SCOR to put in more capital or issue actual reinsurance. It is the detail of the deal which is missing and hard for us to judge.

@Confused - I am assuming there is more to this than announced and that it was run past the RB. If not then the RB will have the last word. The capital issue will not be resolved until Partners Life goes public.

The broader question is that high upfronts will make it difficult for new insurers to establish under the new capital regs. (The high upfronts are not an issue for established firms as they have a high mature to new policy ratio). In the future start-ups will require substantial existing capital bases, which may impact on competition. Given what Naomi and team have achieved over time this would be disastrous.

@Mike - I doubt the Oracle has looked at this personally - it is small biscuits, but someone will have and that counts.
@German - I did comment on banks elsewhere on these pages.
On 9 August 2013 at 12:46 pm Confused said:
Mike.... I understand RB requirements and yes, they just slipped in for another year.

Whilst I appreciate the strain regarding commissions I do not agree with all your comments about commission. That is just the cost to market and it is good that RB has solvency requirements... the way you talk you push a suppliers issue toward the distributor who has their own issues.

Mike, an adviser starting from a standing start has their own cash flow and "solvency issues". Respectfully Mike, this issue has been around longer than you and we have tried various modelling, (I have worked for companies), with actuaries.. Again, respectfully, I encourage you to consider being an adviser for a year selling only on commission... take any variation you like... then come back and discuss the matter again with fresh eyes... (I know Good Returns will censure this.. not sure they are right to censure but however.
On 9 August 2013 at 2:21 pm Sean Kam said:
Facts

1. There are no new RBNZ regulations
2. There was an RBNZ consultation process around the treatment of financial reinsurance for solvency purposes
3. The RBNZ has advised “that given the complexity of some issues in this area, it is likely that a second consultation document will be issued by the Bank to further clarify the requirements that could apply”
4. Partners Life meets current solvency standards requirements
5. Partners Life has never acknowledged it would have trouble meeting new regulations, because no new regulations have been determined
6. All NZ Life insurance companies supporting the IFA network pay upfront commissions. Non IFA companies pay salaries and advertising instead of commissions
7. Partners Life’s reinsurance arrangements are quota share modified coinsurance, a globally accepted reinsurance arrangement that has been used for over 100 years for startup life insurance companies (including Sovereign and One Path)
Commenting is closed

 

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