The global life reinsurance industry is expected to experience stable premium growth of about 3% per year and a return on equity of just above 10% from 2018 to 2020, according to a new report by S&P Global Ratings.
S&P observed that the global life reinsurance industry weathered 2017’s unusually high insured losses of $138 billion relatively well, largely due to its margin-protective high barriers to entry and solid profit prospects.
“This is because the fundamental strengths of the global life re industry remain intact, in our opinion, despite some M&A activity and the emergence of alternative capital in some selected markets,” said S&P credit analyst Sebastian Dany.
The rating agency also expects the global life sector’s essential U.S mortality business to remain stable, with cession rates not exceeding 30%, while industry expansion is likely to come from Asia, where global life reinsurers continue to benefit from the fast-growing primary life insurance markets.
“Asia-based life reinsurers such as China Re, Korean Re, and Taiping Re have been gaining in importance on the global stage in view of their strong positions in respective primary insurance markets,” said S&P credit analyst Johannes Bender. “Nevertheless, we don’t envisage any significant shifts in global market shares over the coming two to three years.”
S&P observed no change in the industry’s focus on biometric risks, with mortality business continuing to dominate and morbidity growth rates remaining stable, but said that it expects to see increasing longevity risk appetite in markets such as the UK, the Netherlands, and the U.S.
Additionally, it noted that the industry benefits from global exposure and well-developed underwriting expertise, which enables global players to develop and maintain longstanding relationships with primary life insurers, meaning they experience less margin pressure than more capacity-driven P&C reinsurance business.
The life sector’s sophisticated risk management skills and globally diversified risk transfer capabilities also enable companies to diversify risk across regions and lines of business, resulting in stable business performance, S&P said.
The report found that the estimated return on equity in 2017 was about 13.3%, as the sector benefited from extraordinary U.S tax reforms, but added that the current 10.2% figure was still slightly above the result for 2016 and beyond S&P’s initial estimates.
