Banks Are Finding Fee Income In Reinsurance Joint Ventures
Reinsurance joint ventures are increasingly attractive to large banks as a way to get a piece of the insurance action beyond fees and commissions, says Hans L. Carstensen, chairman, president and CEO of CGU Life Insurance Company, North Quincy, Mass.
Speaking at the recent Financial Institutions Insurance Association’s fall conference here, Carstensen said reinsurance is the newest element in CGU Life’s efforts to add value to its insurance products for banks. Such joint ventures, in which the bank accepts some of the risk of covering the life policies they sell, can cover term, whole life and universal life products offered by CGU, he said.
Generally, CGU enters into such agreements with wholly-owned reinsurance subsidiaries of large banks, such as HSBC Bank USA, based in Buffalo, N.Y. HSBC is the U.S. subsidiary of the U.K.-based bank, which Carstensen noted has itself entered into reinsurance joint ventures with CGU’s own parent in England, CGNU plc.
Under a reinsurance joint venture, a bank places the risk not retained by CGU with a reinsurer.
“The risk assumed by the bank can be tailored to the bank’s needs,” he said. “The bank doesn’t need to take on more than it’s comfortable with.”
Such joint ventures are a profit opportunity for a bank that has capital to back up the policies, enabling it to share in the profit as well as the risk of manufacturing insurance. That makes it a way to align the economic interests of the bank with those of CGU, he observed.
While acknowledging that reinsurance is complicated, Carstensen said it’s a much simpler way for banks to take a direct stake in insurance than actually manufacturing its own insurance policies.