International financial services ratings agency, A.M. Best, has maintained its stable outlook for the U.S. life reinsurance marketplace, in spite of the company recently revising its outlook on the U.S. life/annuity industry to negative, and maintaining its negative outlook on the global reinsurance market.
A recent A.M. Best briefing on the U.S. life reinsurance sector notes that the fundamentals within the space remain stable, driven by acceptable liability risk and increased conservatism regarding investment approaches.
Despite reduced growth in the primary marketplace negatively impacting growth potential for U.S. life reinsurers, A.M. Best notes that the fundamentals of the U.S. life reinsurance industry differs from the U.S. life/annuity industry.
As a result, A.M. Best has maintained its stable outlook for the U.S. life reinsurance market, despite the company recently revising its outlook for the U.S. life/annuity industry to negative.
The ratings agency explains the reasoning for this. Five large carriers assume a substantial majority of U.S. life mortality business and, four of the largest U.S. life reinsurance companies are divisions of tier 1 reinsurers, being Munich Re, SCOR, Hannover Re, and Swiss Re, all of which “are well-placed at their current rating levels and carry a stable outlook from A.M. Best.”
“Over the last decade, the life reinsurance market experienced a wave of consolidation, resulting in a highly concentrated and competitive, but rational, marketplace. The companies that were aggregators have meaningful economies of scale, solid capitalization, and very strong market positions, and offer value-added services. In A.M. Best’s view, consolidation in the life reinsurance market has run its course,” says A.M. Best.
Furthermore, A.M. Best explains that ongoing low-interest rates has contributed to the negative outlook for the U.S. life/annuity space. But with life reinsurers less reliant on investment income to achieve returns and more focused on underwriting profits, the lower-for-longer interest rate environment has less of a negative impact here, although it’s still not desirable.
“The stand-alone outlook for the U.S. life reinsurance market, which first was assigned in late 2015, reinforces the view that the operating performance and capitalization of the major life reinsurers operating in the U.S. marketplace remains stable, underpinned by modest premium growth; good mortality experience, which remains within pricing parameters; and very strong and defensible market positions,” concludes A.M. Best.