I'm very interested in the effect on ROE, I suspect it will be a...

I'm very interested in the effect on ROE, I suspect it will be a lower margin business than direct annuity writing.

@wg159

All else being equal, the US$-denominated reinsurance business will be ROE-accretive, even though it will (self-evidently) entail a slight deterioration in the PCA Ratio.

Margins will almost certainly be lower vis-a-vis direct US$-denominated annuity writing, because MS&AD aren’t going to want to do it for nothing, i.e. they will most likely require from CGF a slightly higher fixed rate than the one they pay to their annuitants.

Given that the 20-year US Treasury yield is more than 50bp higher than the corresponding Australian yield, there is currently a bit more room to extract margin from US$-denominated annuities, though; therefore, CGF’s margins from US$-denominated reinsurance may not be significantly worse than the ones currently achievable from direct A$-denominated annuity writing.

My only concern is the reporting of this business unit & currency exposure. To me we now need to have 3 segments, Life, Funds Management & Re-insurance.

I don’t think so, because CGF are already doing A$-denominated reinsurance for MS&AD, without the need to report it under a separate segment. The net currency exposure is small, and easy to hedge.

Also curious how MS&AD apportion their risk, as part owners of their own re-insurance.

As 16%-owners of CGF (or whatever percentage they’re planning to increase their ownership to), MS&AD are going to retain 16% upside on the portion of risk that gets reinsured, plus a (small) fixed spread corresponding to the difference between the fixed rate they require from CGF and the one they offer to their customers.

Cheers