Beechwood Re is famous in the long-term care insurance (LTCI) community for reinsuring a big block of LTCI policies from CNO Financial Group Inc. (NYSE:CNO).
The reinsurer seemed to come out of nowhere to bring hope to the struggling LTCI sector. Beechwood Re gave the direct LTCI writers — the insurers — a chance to imagine that reinsurers might be willing to assume responsibility for unwanted blocks of LTCI business.
The deal also raised the possibility that reinsurers with a deep understanding of LTCI might draw the money of bold, forward-thinking investors into the sector, and help revive the sector.
See also: CNO makes LTCI reinsurance deal
HC2 Holdings Inc. (NYSEMKT:HCHC) announced several LTCI reinsurance deals in 2015. Other reinsurers courted the direct writers by putting out LTCI white papers.
So, how hungry are reinsurers for LTCI deals?
At Beechwood Re, the answer appears to be, “A little.”
Executives from the Cayman Islands-based reinsurer talked about the company’s shopping preferences recently in New York, at the company’s U.S. offices.
One message was that the company will look at a wide range of deals, including proposals involving fixed annuities, structured annuities, corporate-owned life insurance, funeral insurance, long-term disability insurance and LTCI policies.
Another message was that the company’s executives are assuming that the LTCI sector will continue to face serious challenges.
For more about what Beechwood Re is, how it came to be, and what its executives think about LTCI proposals, read on.
1. The CNO deal helped realign its operations, but the deal was not a source of cash for it.
Beechwood assumed responsibility for the CNO LTCI blocks by providing 100 percent coinsurance, but CNO had to pay handsomely for Beechwood to do that.
Beechwood and CNO said at the time that CNO was ceding $550 million in statutory reserves and $40 million in other capital to Beechwood Re to make the deal happen.
Later, CNO reported in financial filings that two subsidiaries had to pay an additional premium of $96.9 million to Beechwood Re, and an amount “equal to the related net liabilities.”
Image: Mark Feuer (LHP/Allison Bell)
2. Beechwood Re has roots in the U.S. property-casualty market.
Mark Feuer and Scott Taylor, the founders of the company, aren’t saying they will offer deals that will make LTCI issuers happy. What they are offering is the capacity to look at deals with an open mind.
Feuer, Beechwood Re’s chief executive officer, and Scott Taylor, the president, may have a little extra tolerance for customized underwriting because they come out of the property-casualty insurance sector.
Feuer has been the chief executive officer of Marsh USA, a unit of Marsh & McLennan Companies Inc. (NYSE:MMC), and Taylor has been the head of the small commercial business segment at Marsh & McLennan.
Earlier, Feuer was the chief operating officer (COO) at Merrill Lynch Americas, and Taylor was the COO at the Merrill Lynch private banking and investments group.
Feuer and Taylor used their own cash and cash from several family offices to start Beechwood Re, which is based in the Cayman Islands, and an investment management unit, Beechwood Bermuda International Ltd., which was based in Bermuda. Beechwood Bermuda serves only non-U.S. investors.
Image: Scott Taylor (LHP/Allison Bell)
3. Beechwood Re did not do the CNO deal because it sees a bright future ahead for LTCI policies.
Taylor said Beechwood Re likes a deal that’s too small to interest the big reinsurers; a chance to search in large piles of risk for slices of risk that it likes; and a deal “with hair on it.”