A.M. Best’s outlook for the U.S. life reinsurance market for 2018 is stable, with the market characterised by modest growth, mortality levels that remain within pricing parameters and the strong positions of major players.
Michael Adams, A.M. Best, Senior Financial Analyst, commenting on the stable outlook, said; “reinsurers are somewhat less exposed to some of the macro economic factors that direct carriers are exposed to, including global interest rates.
“This is due to the fact that they’re more focused on their underwriting profitability, mostly mortality underwriting profitability rather than investment income or earning money off of interest rate spreads.”
M&A activity in the space is running out of steam, with the market now very top heavy as subsidiaries of the European big four and the Reinsurance Group of America (RGA) make up the five dominant players that control 80% of the U.S. life premium industry.
The U.S. life reinsurance market continues to see interest by new entrants, however, their business models are mostly focused on asset accumulation over mortality.
The market is also hard to break into, with newcomers disadvantaged with generally lower ratings, lacking long-standing client relationships and historically, experiencing operational challenges.
A.M. Best said it doesn’t expect to see meaning disruption in the U.S. life space, as newer players “are often backed by investment managers with expertise in certain asset classes and have a greater risk appetite. Their business models are predicated on offering attractive prices to buy annuity business.
“While there is a potential for such companies to acquire significant assets, their focus is not life reinsurance.”
A.M. Best isn’t expecting much change in the U.S. life space in coming years; “the five dominant players in the market are focused on the mortality business, cession rates have come down over the past five to ten years and there could be some direct carriers focused on capital solutions to navigate the regulatory environment, so that would benefit reinsurers potentially,” said Adams.
He added; “we’ve seen some interest in legacy block business, more recently a VA block, so we could see some minor diversification for the larger reinsurers but we don’t see a lot of change there.”
