The life reinsurance segment continues to function as a “source of stability” for the overall global reinsurance market, according to AM Best, who looked at the state of the sector in a recent report.
The rating agency noted that the life reinsurance market continues to be dominated by just five large carriers, which account for the vast majority of assumed business.
Life reinsurance comprises at least 40% of the reinsurance industry’s gross written premium, with the US accounting for approximately half of global life premiums.
Despite this dominance, mature markets continue to experience only modest growth, AM Best said, with most expansion opportunities situated in emerging markets.
Asia-Pacific in particular now represents a meaningful portion of global life business, with double digit growth rates, although pockets of opportunity are still to be found in some established markets, such as UK pension longevity business.
While traditional reinsurance remains somewhat stagnant due to historically low cession rates, AM Best observed that reinsurers are benefitting from an active pipeline of block of life insurance and interest-sensitive business.
Meaningful growth in the life reinsurance segment could also be further driven by Solvency II capital requirements and low investment returns, analysts suggested.
Barriers to entry in the sector continue to be significant, which has helped to solidify the market positions of well-established players, who have built a competitive advantage by developing long-held relationships that new entrants lack.
These defensible market positions have been further strengthened by moderate premium growth and strong earnings from seasoned mortality books of business.
Although low interest rates and the potential for rising impairments could negatively impact direct life and annuities players, AM Best considers life reinsurers in general to be somewhat less reliant on investment income to achieve return targets.
Life reinsurers take significant risk on the liability side of the balance sheet and thus tend to accept less investment risk.
However, analysts also acknowledged that some reinsurers are implementing broad-based rate increases and paying recapture fees in some instances due to deterioration in their books of business.
This can partly be traced back to the late 1990s and early 2000s, when some carriers were overly aggressive with block acquisitions, AM Best explained.