The fundamentals of the U.S. life reinsurance market remain stable, as the defensible positions of the five large reinsurers writing the majority of U.S. mortality risks characterise the sector, according to A.M. Best.
Life reinsurance in the U.S. is not as competitive as in some other regions of the world, such as Europe and Australia, and with the market dominated by major players it remains an area of stability in the current reinsurance market environment.
Mortality risk underwriting remains the largest portion of the U.S. life reinsurance market, but increasingly an aging population and the resulting need for longevity risk transfer is offering opportunities for growth into new areas.
Rating agency A.M. Best sees the acceptable liability risks capitalization of life reinsurers operating in the U.S., as well as their conservative investment approaches and defensible market positions, all as signs of a relatively stable market.
That’s not to say that life reinsurers don’t face challenges, with low cession rates that have settled around the mid-20% range are well below the historic highs of around 60%. That means less opportunity for premium acquisition, and rising competition, are both increasingly a factor for reinsurers to contend with.
Alongside the growing need for longevity reinsurance solutions, there are other opportunities for life reinsurers.
These include capital management transactions, often termed financial reinsurance, which are a source of much needed revenue and opportunity, given the increased reserving requirements life insurers, especially term life, face. Acquisition of legacy life books is also an opportunity, helping insurers to free up “trapped capital” by acquiring or co-insuring such blocks to help direct writers put capacity back to work.
One possible threat is the rate of mortality experience, which in recent years has been seen to impact life reinsurance profitability for some life reinsurers.
While mortality rates have been seen to increase, A.M. Best notes that it believes that the reason is actually that life expectancies are not increasing as fast as had been expected and predicted by actuarial models.
Overall the U.S. life reinsurance market presents a still profitable opportunity for reinsurers, albeit one where the market is dominated by a few large players and hence opportunities can be difficult to source for smaller reinsurers, or those looking for new diversification avenues.