August 20, 2025

By John Rup, Director - Insurance Solutions

 

The individual annuity market has recently captured the attention of life insurers due to a wave of demographic tailwinds, rising interest rates and record-breaking sales growth and many carriers are deploying significant resources to this highly competitive, capital-intensive space. Yet a lesser publicized – but equally powerful – opportunity exists in the form of funding agreements. 

Broadly speaking, funding agreements are a contract for an insurer to accept and accumulate funds and make one or more payments at future dates that are not dependent on mortality or morbidity risks, but on the terms of the contract itself. While strict definitions may vary by state, funding agreements may be classified under deposit-type contracts and are typically purchased by an institutional investor base. 

Funding agreements can provide insurers access to an ocean of stable, reinvestment-driven capital, potentially on more favorable and operational terms than traditional retail liabilities. They offer the benefits of 1) diversifying their issuance channels, 2) more predictable liabilities and 3) a high degree of funding flexibility.

 

Diversifying Issuance Channels

While the individual annuity market continues to expand with households increasingly allocating retirement assets into annuity-like products, the scale of this retail opportunity remains modest compared to the capital available in institutional markets. 

As illustrated in Figure 1, at year-end 2024, households with annuity-like retirement investments totaled approximately $4.3 trillion¹. By contrast, the institutional investor universe, including mutual funds, pensions funds, insurance companies and sovereigns, holds more than $200 trillion in assets – 50 times larger than households – offering a vastly larger pool of capital with continuous reinvestment needs. 

Funding agreements offer insurers a pathway to tap into this deep, liquid market by positioning themselves as high-quality, yield-generating counterparties.

Click below to continue reading Conning’s Viewpoint, “Funding Agreements: Strategic Capital for a New Insurance Era."

 

 

Footnotes
1. “Individual Annuity Investors” equate to assets from life insurance general and separate accounts pension entitlements including reserve credit from reinsurers. “Institutional Investors” equate to private, state and local pension entitlements, private depository institutions, property-casualty and life insurers, money-market funds, mutual funds, closed-end funds, exchange-traded funds, finance companies, broker-dealers, holding companies and other financial businesses.

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