The industry remains well capitalized and is dominated by the large global players, but faces incremental competition from shifting business modelsThe Best’s Market Segment Report, “Life/Annuity Reinsurers Remain Prepared for Growth,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Additional reports, including AM Best’s annual ranking of the Top 50 global reinsurance groups and in-depth looks at the insurance-linked securities, Lloyd’s, health and regional reinsurance markets, will be made available during August and September.
OLDWICK, N.J., September 6, 2023—Excess mortality has negatively affected the profitability of global life reinsurers, although the impact of elevated life claims on most is likely to remain a manageable earnings drag, according to a new AM Best report.
The report states that the global life/annuity reinsurance segment remains well-capitalized and positioned for robust growth. The impact of COVID-19 on life reinsurers has been less pronounced than initially expected, although elevated mortality has been seen in certain demographics. Whether the pandemic will cause a permanent shift in mortality, or if mortality will revert to pre-COVID levels, remains to be seen.
“Questions remain about the near- and long-term impacts of pandemic-related mortality experience on assumptions and future pricing for the life reinsurance industry,” said Stratos Laskarides, senior financial analyst, AM Best. “Early evidence indicates different approaches to insurers’ mortality assumptions, as some have updated assumptions and pricing for the pandemic experience while others have not.”
The impact of the pandemic on mortality pricing in the United States to date has been slight. In Europe, mortality pricing has been adjusted because of worsening mortality trends, and in the United Kingdom, many insurers have raised premiums by 15-20% due to heightened mortality risks.
New Capital In The Life Reinsurance Segment
Almost all the largest global reinsurers write life and non-life business. The traditional life reinsurance market remains concentrated, with the top-tier companies accounting for over 96% of the U.S. individual and group life in-force business reinsured. Private-equity-backed insurers also have emerged over the last several years as startups in the annuity and block reinsurance markets.
“New capital clearly has come into the life reinsurance segment, which AM Best views positively,” said Edward Kohlberg, director, AM Best. “The key to deploying this capital is the sponsor’s understanding that life and annuity insurance is a long-term play. Capital providers that are impatient and lack a long-term focus will be unable to achieve their business goals.”
Overall, traditional life reinsurance carriers remain well-capitalized, and their risk-adjusted capitalization is expected to remain healthy for the remainder of 2023 and in 2024, despite heightened investment volatility and elevated mortality. Historically, traditional life reinsurers have been less exposed to financial market risk than primary writers. Still, prudent asset-liability matching is a key element of the enterprise risk management frameworks of life reinsurers, and AM Best believes that strong capital buffers will be able to absorb potential asset revaluations amid the volatile capital markets in 2023.
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