Advanced and strong risk management and underwriting capabilities will support reinsurers as they navigate the challenges of the expanding life reinsurance industry in emerging markets, according to ratings agency, Standard & Poor’s (S&P).
S&P expects emerging life insurance markets to drive the expansion of the global life reinsurance sector in the medium-long term, but does highlight some potential challenges for players in emerging life markets, including the risk of limited market and underlying actuarial data knowledge, warned S&P, in its Life Reinsurance outlook report.
The ratings agency also warned that continued growth in longevity and morbidity business lines is shifting the risk profile of the industry, especially when compared with “dominant mortality exposures observed for most life reinsurers today.”
Typically, and on a stand-alone basis, longevity business is less profitable than mortality business, and while S&P notes some beneficial diversification effects between the two business lines, in its opinion, “longevity risk is not always fully diversifiable from the mortality business in the respective regions.”
In addition, actuarial assumptions in emerging life insurance regions may well vary over time.
“In our view, growth in emerging markets and the longevity business could gradually change the risk profile of the global life reinsurance industry and potentially increase capital requirements,” said S&P.
However, S&P feels that the advanced risk management and underwriting capabilities of the industry is sufficient to manage these challenges and headwinds.
“We believe these skills will support life reinsurers in identifying viable growth opportunities and managing regulatory challenges, while keeping them away from aggressive growth in young markets where it is easy to underestimate risks,” explained S&P.
