Retrocession Market Ebbs, But Some See Areas Of Opportunity
The retrocession supply is declining for life reinsurers with the exit of several reinsurance carriers, due to losses and constraints on capital, industry experts say.
Retrocession is reinsurance for the reinsurer, allowing the reinsurer to spread risk it has assumed from a direct writer.
These forces have made reinsurers either focus on their core business or exit the market, observes Andrew Kligerman, an analyst with UBS Warburg, New York.
“Purchasers are requiring more collateral, which is making it more difficult for retrocessionaires to write business,” Kligerman says. “And rating agency capital pressures are factoring into this equation.”
Industry officials agree that the reinsurance market is near capacity, and consequently, there will be less growth in the retrocession market.
“Many direct companies have reinsured up to 90% of new business, so now it is hard to cede more,” comments Claude LaPointe, vice president of life reinsurance for RBC Liberty Insurance, a subsidiary of the Royal Bank of Canada, Toronto. “So I dont think there will be growth in the new future.”
However, some executives in the industry see opportunities in the retrocession market, however.
“I think there are some interesting growth opportunities,” says Mike De Koning, managing director of life reinsurance for Manulife Financial Corporation, Toronto.
Although organic growth in the market is declining because of industry consolidation in increased retentions by life carriers and reinsurers, that can be a good thing for those carriers that remain, he says.
“The underlying life reinsurance market is hardening, and that goes in our favor as more companies are facing capital constraints,” De Koning says.
He sees market opportunities opening up for Manulife as a result of increased industry focus on group concentration situations, such as in corporate-owned and group life insurance.
Ron Laeyendecker, vice president of life insurance markets, Great West Life and Annuity Insurance Company, Winnipeg, Canada, says his companys retrocession business has grown, at least in part because it has focused on steadily growing market segments.
“We have not pursued the term market,” he says. “We look for whole and universal life.”