New Entrants Eye Life Reinsurance Market
The life reinsurance herd continued to thin in 2003, but some new players may be considering a run with the pack this year, according to interviews with many executives.
Fewer players last year contributed to better pricing and even more bargaining power in shaping treaties, those interviewed agreed.
But direct writers who are shaking the bushes looking for new solutions may be making enough noise to get the attention of non-traditional reinsurance wannabes.
In the second half of 2003 non-traditional participants, including commercial banks and investment firms, started expressing more interest in life reinsurance, says Steven Lash, a partner with Ernst & Young, New York.
That movement, along with the potential for non-traditional players to joint venture with direct writers, could be something the life reinsurance market will see more of this year, he continues.
One possible reason for the interest, according to Lash, is that some banks have captives with capital in low return investments such as U.S. Treasurys and are looking for better returns.
There may well be some new participants, but they have to recognize it is a long-term commitment, says Joseph F. Kolodney, managing director with AON Re Global Life Reinsurance practice area in Stamford, Conn.
And direct writers are more mindful about partnering with younger reinsurers because of at least one newer reinsurers recent troubles, he says.
For example, Kolodney says, one direct writer he is aware of would not work with a strong reinsurer because that reinsurer was 4 years old and company guidelines required 5 years of history.
Additionally, if an entity is weighing an entry into the market, then it needs a minimum of $500 million in capital and surplus, he says. One reason for this is that life products require significant reserves, Kolodney adds.
While some banks with reinsurance operations or special purpose vehicles for providing capital relief may enter the reinsurance market, he says he does not see it happening on a broad spectrum.
Kolodney says he does know of a large private equity firm that is trying to learn more about the business. But, he adds, you are looking at a long-term commitment in the business so an entity needs staying power.
Other options such as securitizations also are being contemplated and used, interviews affirm.
First Colony Life Insurance Company, a unit of GE Financial, based in Richmond, Va., participated in a securitization, says Tom Topinka, a spokesman for the company.
Securitizations are transactions that bring together both traditional mortality and financial relief, according to Jim Senn, president-individual business with ING Re, Denver. Consequently, he continues, participating in the mortality portion of the transaction, which he considers pivotal to INGs business, would be an area in which the company could conceivably participate.
Mortality is also an area that Weldon Wilson, CEO with Swiss Re Life & Health America Inc., New York, says is central to its business. Swiss Re, he continues, would consider participating in securitizations because of its involvement with both the mortality and financial areas of the business.
But there is a high cost of entry for any direct writer considering a securitization of a block of business, says Jeff Burt, vice president-marketing with Hannover Life Re, Orlando, Fla., and players need to be big in order to make the transaction worthwhile.
“The price is fixed, but the price is high,” Burt adds.