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More positives than negatives in life reinsurance: S&P

4th August 2017 - Author: Luke Gallin

The outlook for the global life reinsurance sector is “promising” through 2019 as opportunities in the space outweigh a string of persistent market challenges, especially when compared with the property and casualty (P&C) space, according to Standard & Poor’s (S&P).

Longevity image“Despite prevailing low interest rates, fierce competition in the sector’s bread-and-butter business of U.S. mortality, and the inherent volatility of life reinsurance, we consider that opportunities outweigh challenges in the sector,” said S&P Global Ratings analyst, Sebastian Dany.

The ratings agency predicts premium growth of roughly 3% per year through 2019, supported by solid profits and a return on equity (ROE) of a little more than 10% from 2017 through 2019.

S&P expects growth to come from longevity business and also morbidity operations, and also the expanding primary life insurance sector in some parts of the world fuelling demand for life reinsurance protection.

Emerging life insurance regions, particularly in Asia-Pacific, will continue to be an additional strong source of growth for the sector in the medium to long term. These developing life insurance markets could expand significantly in the next few years as these economies develop and insurance penetration rates rise,” said Dany. 

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The strong profitability outlook is also supported by the concentration of the life reinsurance sector, with the top six players n the space holding a combined market share of over 90%.

“Although competition and pricing pressure is visible among the established players, the high barriers to entry for new entrants will likely help the industry perform in line with its sound history. Since the barriers to entry are lower for the longevity swap business, which has a larger number of competitors, we assume this segment will experience greater pressure on margins,” said S&P.

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