Growth in the U.S. life reinsurance market has been challenged due to limited growth by direct writers, but opportunities have taken shape in emerging markets, particularly in the Asia-Pacific region, as well as in legacy life/annuity blocks of business that have come to market, according to a new AM Best special report.
Five carriers, accounting for the vast majority of assumed business, dominate the U.S. life reinsurance market, which is in sharp contrast to the primary life insurance market. The Best’s Market Segment Report, titled, “Global Life Reinsurers Poised for Growth, But Mature U.S. Market Still Key,” notes that these top-tier players have strong capital positions and earnings that reflect disciplined pricing and mortality experience, as well as a stable book of recurring business.
Moreover, the U.S. life reinsurance business makes up a significant share of the European-based companies’ global life reinsurance premiums. Ultimately, the United States remains a key market for global life reinsurers as it constitutes the largest primary life insurance market.
However, the Asia-Pacific direct life insurance market continues to grow faster than in developed countries, providing opportunities for life reinsurers to assume more business. China’s life insurance market is now the world’s second largest life insurance market. Additionally, legacy life/annuity blocks of business also have become meaningful acquisition opportunities for global life reinsurers, and recent acquisitions involving second- and third-tier reinsurers highlight growing market competition. Life reinsurers also have been able to take advantage of more companies laying off large pension obligations, particularly outside the United States. Pension business and other interest-sensitive lines are benefiting from a favorable economic environment with generally rising interest rates and a benign credit environment.
Life reinsurers remain active in providing financial solutions, including the continued financing of redundant reserves, providing capital management solutions to assist companies working through regulatory and taxation changes and providing avenues to exit underperforming books. Reinsurers view underwriting as a key area in which to add value, offering underwriting expertise and affording direct writers an avenue to lay off risk should actual results deviate from pricing as a result of new underwriting processes.
AM Best believes life reinsurers must continually invest in technology to stay competitive in a world that is rapidly changing. New digital solutions and automated underwriting platforms are enhancing the customer experience and enabling companies to maximize the value of their in-force business, thus contributing to the long-term value of the organizations.
However, such initiatives come with a need for meaningful investment, including system upgrades and the development of innovative solutions, partnering with technology firms and harnessing the benefits of predictive modeling.