Analysts at Fitch Ratings have said that the largest European reinsurers – Munich Re, Swiss Re, Hannover Re, and SCOR – benefit from a competitive advantage thanks to their leading positions in the life and health markets.
Fitch noted that the life and health reinsurance market is characterised by an oligopolistic structure with high barriers to entry.
As a consequence, pricing is less important than in property & casualty reinsurance, while underwriting capabilities, product innovation and distribution strength are key differentiating factors.
It is estimated the top seven players control almost 90% of the L&H reinsurance market, with the top four controlling as much as 50%.
This is due to the relatively small size of the market compared to P&C Re, as well as the importance of long-term client relationships, and complex internal databases for risk management.
Fitch expects the market to grow 4% per annum on average over the next two-to-three years, mostly driven by emerging Asia and financial solutions that go beyond a pure risk transfer.
But while returns on equity have remained broadly stable in the 8%-10% range over the last five years, the rating agency also expects mild pressure on life and health reinsurance returns for the next two years unless investment yields rise.
The four major European reinsurers have managed to at least maintain their overall market position over the last five years, and Fitch believes they can continue to outgrow the market in the near-term as they are strong on innovation and have a substantial presence in Asia.