A top-20 American life insurance company said that the new Bermuda captive it had just established would bring cashflow benefits to the parent.

Globe Life Inc group formed a Class C Bermuda reinsurance captive to support insurance business written by its affiliate entities, part of a broader strategy to enhance its financial position.

It is expected to generate as much as $200 million annually in additional earnings for the parent company over time.

The holding company, based in McKinney, Texas, specialises in life and supplemental health insurance.

It reported in July that the Securities and Exchange Control had ended an investigation into earlier allegations of fraud, with no expected enforcement action.

The allegations devastated the stock price, which at one point fell more than 53 per cent to under $50. They have rebounded quite a bit since then and are now trading around $142.

Meanwhile, Tom Kalmbach, Globe Life’s executive vice-president and chief financial officer, told analysts recently that the Bermuda affiliate would reinsure a portion of new business and in-force life insurance policies issued by Globe Life US affiliates.

The Bermuda company has already executed its first reinsurance transaction, which was expected to reinsure a relatively small block of life reserves to get the company up and running.

Mr Kalmbach said: “We anticipate that over time, approximately one quarter of total statutory life reserves may be ceded to our Bermuda subsidiary as a portion of new business and additional in-force business is reinsured.”

Globe Life is not contemplating any changes to the company’s overall investment strategy.

Mr Kalmbach also told analysts: “Our decision to pursue this new Bermuda captive reinsurer is for the following strategic reasons: first, Bermuda’s economic capital framework will better support Globe Life’s continued sales and premium growth rates, which are generally above industry average.

“We are also very comfortable with Bermuda’s statutory framework as it is consistent with US (Generally Accepted Accounting Principles) and capital is determined under an economic framework.

“This supports earnings emergence consistent with GAAP earnings, which over time will provide additional dividend capacity to the parent, enhancing the parent’s overall financial strength and flexibility.

“In addition, Bermuda is an established and stable regulatory environment with international insurance industry experience.

“Bermuda regulators have been actively engaged in discussions with us and have developed a good understanding of our business and the insurance products we intend to reinsure with the new entity.”

He added: “Following approval of reciprocal jurisdiction, which we will seek to obtain as soon as possible, we currently estimate parent excess cashflow will increase from incremental earnings from our US and Bermuda subsidiaries over time as the reinsurance block grows.

“This additional excess cashflow will enhance our financial strength of the company and provide additional flexibility for the company to meet various capital and liquidity needs of the parent.”

Mr Kalmbach added: “While we don’t anticipate any additional parent excess cash flows until 2027, we do see the potential for additional distributable earnings from our subsidiaries to the parent trending over time towards $200 million annually as earnings emerge from reinsuring additional in force and new business.

“This would provide additional financial flexibility for the parent to support our growth.”

The company will write affiliated quota share reinsurance business, assuming a proportional share of risk on specified insurance policies, with all arrangements conducted on an arm's-length basis and subject to appropriate regulatory oversight, Globe Life said.

Globe Life has more than 16,000 insurance agents and 3,600 corporate employees.

S&P Global Market Intelligence 2024 reported that Globe Life, together with its subsidiary companies, issues more life insurance policies and has more policyholders than any other life insurance company in the US, with more than 17 million policies in force (excluding reinsurance companies).

Globe Life's insurance subsidiaries include American Income Life Insurance Company, Family Heritage Life Insurance Company of America, Globe Life And Accident Insurance Company, Liberty National Life Insurance Company, and United American Insurance Company.