According to AM Best, companies within the global life/annuity and health reinsurance segments are adopting different approaches as they react to elevated mortality trends; however, these reinsurers have remained well capitalized throughout the pandemic.
The report suggests life and health reinsurers’ earnings in 2021 suffered from adverse mortality trends, though the overall impact on the profits of the L/A segments varies.
Best observes that offsets coming from earnings from other books of business, such as longevity, health, and financial solutions have played a role, but with the pandemic continuing in 2022, return metrics are likely to continue to suffer negative impacts.
Michael Porcelli, Senior Director of AM Best, commented, “Whether the pandemic will cause a permanent shift in mortality, or mortality will revert to pre-COVID-19 levels once the pandemic has finally dissipated, remains to be seen.”
“Early evidence indicates differing approaches to insurers’ mortality assumptions, with some choosing to update assumptions and pricing for the pandemic experience while others have not.”
The impact of mortality pricing in the US has been minimal, says Best, suggesting that mortality is expected to return to normal.
In the UK, there has been a greater expectation of a permanent shift in mortality, which Best notes is being felt in the longevity market, and has led to more price competition.
The US traditional life reinsurance market has been pressured by historically low cession rates, says Best, however, a notable rise in U.S. business ceded in more-recent years continued in 2021, with a 28% year-over-year increase.
The report states that this trend was driven by the introduction of principle-based reserving, the 2017 CSO mortality table, and the growing use of automated underwriting.
Health reinsurance solutions demand has grown significantly, affirms best, with primary carriers facing the growing pressure of high-cost claims that come with innovative treatments and new therapies.
Additionally, the fast expansion of health premiums, combined with relatively narrow margins, creates capital pressure.
Doniella Pliss, Director of AM Best, added, “COVID-19 somewhat slowed down the rate of global health premium expansion, but also enhanced the awareness of the value of health protection products, which is expected to fuel near-term growth.”
“Reinsurance provides a solution for capital relief and allows primary carriers to focus on further growth.”