After numerous issues in the Australian life and health insurance business, primary companies are increasingly looking to life reinsurance opportunities, in order to transfer exposures from older business and to resolve capital issues.
Industry wide deterioration in lapse rates and rising claims trends have both impacted the life and health business of major Australian insurers in recent years and it’s clear that companies are planning to offload the legacy issues associated with this.
AMP entered into a reinsurance deal with global giant Munich Re in the last quarter of 2016, hoping to step away from business that had cost it over consecutive quarters.
The reinsurance transaction saw Munich Re provide a quota-share reinsurance covering 50% of $750 million of life premiums for AMP, with the cost to the insurer $25 million annually. The deal was said to free up $500 million in capital.
In its results posted this morning AMP said that the freed up capital from the reinsurance deal has helped the company, but it foresees entering into another life reinsurance deal as it continues to shed the poor performing business.
“The process for a second tranche of reinsurance is now underway,” the company revealed.
As AMP looks to reduce its exposure it provides an opportunity for global reinsurers to step in and benefit from diversified risk in Australia. These global players can take on business that for a local insurer is not cost-effective, so putting their capacity to work to help the local market gain efficiency.
Similarly, Suncorp is another local insurer that has struggled with its life portfolio. The company has been actively trying to manage its life exposures, with some success, but in its results and earnings call revealed a desire to find a “strategic alternative” for its life business.
One potential strategic alternative would be reinsurance, as well as partnerships, on its life portfolio, the company said.
Global reinsurers will be attracted to the opportunity to assist these Australian insurers, which should guarantee that reinsurance is a cost-effective alternative for both companies.
It’s attractive to accumulate business and gain a foothold in this market, as the country has had a growing economy and therefore demand for life and also health cover has been higher than other regions of the world.