The top eight global life reinsurers dominate the industry and account for around 90% of total premiums, making it difficult for new entrants to quickly enter the market and establish themselves, according to a recent report by S&P Global Ratings.
The report said that such a scale of competitive advantage would be difficult to replicate in the short to medium term, but noted that the market dynamics have continued to change due to frequent mergers and acquisitions (M&A) activity in recent years.
For example, in 2017 Partner Re completed a merger with Aurigen Re, which boosted its premiums by 20%, while SCOR also acquired MutRé and a significant block of AEGON’s life reinsurance business last year.
S&P said that it does not currently believe that sizeable M&A transactions are likely to change the global competitive landscape, owing to a lack of targets, although small to midsize portfolio transfers remain likely.
The market entry of Langhorne Re earlier this year, which was backed by $780 million of equity capital from Reinsurance Group of America (RGA), RenaissanceRe Holdings, and third-party capital, is also significant, according to S&P.
Langhorne Re will be targeting large in-force life and annuity blocks, allowing cedents to de-risk and optimise their capital management, although the rating agency again does not believe this entrant to be capable of changing the competitive landscape, as underwriting capabilities remain key and pure pricing and capacity are less important to the sector.
Additionally, Asia was identified as a key growth area for the entire life reinsurance sector, with Asia-based life reinsurers such as China Re, Taiping Re, or Korean Re generating growth rates higher than global competitors in recent years.
The North America region continues to generate about half of all premiums in the life reinsurance industry, but S&P noted that the U.S market has shown signs of maturing, with growth for reinsurers stagnating in recent years as primary insurers have retained more business on their books.
In 2017, growth for reinsurers improved as the U.S cession rates increased to over 25% in the market, but S&P said that it did not expect the cession rate to increase to more than 30% over the short to medium term.