Life reinsurers are exerting new discipline, rethinking the business and preparing for product, regulatory, financial market and climatic changes that will reinvent the market, interviews with National Underwriter suggest.
Life reinsurance leaders offered their insight on how the market is changing.
Weldon Wilson, CEO of Swiss Re Life & Health America, New York, and a member of Swiss Re’s executive board, says “the state of the industry is still very strong. There are significant opportunities for companies that are committed for the long term. Reinsurance is not an industry that you jump in and out of.”
For those who choose to stay, he adds, “there has been some consolidation in the last several years and people might say it is shrinking.” But, he notes, there also have been new entrants and capital from outside the industry, which shows there is interest in the life reinsurance market.
What Your Peers Are Reading
Indeed, this trend was underscored on Oct. 25, when PartnerRe Ltd. announced that it raised $550 million in additional capital to be used for general purposes and the pursuit of growth opportunities in the global reinsurance marketplace.
For those who stay, Wilson says there are opportunities in the U.S. market that are yet to be tapped fully.
For instance, Wilson says he believes that reinsuring closed blocks of business will continue to be an opportunity.
Wilson says Swiss Re did start adjusting rates in 2003 and pricing as needed. While prices more often than not increased, in some cases they were lowered, he adds. For some direct writers, the reversal in a prolonged downward price trend was a difficult thing to accept, he continues.
Another trend Wilson sees is the tendency for direct writers to retain a greater portion of the risk they underwrite. He says such retention aligns the interest of the direct writer and the reinsurer.
Cession rates, he says, will continue to decline for two reasons: 1) the strength of the capital markets will provide direct writers with more capital to devote to the business; and 2) a switch by some large direct writers to a quota share arrangement in which direct writers and reinsurers share a proportionate share of the risk.
Wilson says more business will be securitized in the future. Reinsurers acting as consultants will be able to readily compare traditional reinsurance solutions and securitizations in order to determine what the most efficient way is to access capital. “It may be more difficult for smaller to mid-sized companies to achieve that mass,” he says.
Chris Stroup, chairman and CEO of Wilton Re, Wilton, Conn., says there will continue to be a tightening of the market as a “fair degree of discipline is exerted” and he says he hopes this discipline is maintained. Ultimately, a point of equilibrium will be reached, he continues.
Stroup says he doesn’t see much additional capacity coming from offshore or too many new players entering the market. But he adds that he does see growth in securitizations because they create less risky profiles for both direct writers and reinsurers. Stroup also notes that it is good for both to take risk out of the system.
For the duration of this year through 2006, Stroup says there will continue to be a reduction of cession rates.
The general consensus was that products including variable annuities with guarantees have little or no available reinsurance with limited exceptions such as ACE Tempest Life Reinsurance, Ltd., a life reinsurance unit of ACE Group, Hamilton, Bermuda.
And, the same may be true of UL with guarantees. The reason is there are concerns with the economic risks being taken and the level of guarantees being offered.
What will continue to be of more interest, according to interviews, is traditional mortality risk.
Long term care
Even with the aging of the baby boom generation, which will need long term care and longevity insurance products, many reinsurers say they are ambivalent about whether there will be a growing reinsurance market for these products.
Reinsurers can drive more innovative underwriting both at their level and at the consumer/primary/direct level through improved data collection and analysis, says Joseph Kelly, marketing leader for the accident & health division of GE Insurance Solutions, Avon, Conn.
A reinsurer has the capability to analyze data from multiple primary carriers and turn that data into information on co-morbidities, pricing discrepancies, potential benefits of cognitive screenings on two of the most costly claims (Alzheimer’s and dementia), and a host of additional areas, Kelly says.
The use of reinsurance in the LTC market was reported recently on National Underwriter’s Web site, where there was an account of efforts by Penn Treaty American Corp., Allentown, Pa., to reinsure LTC business sold on or after Oct. 1 with Imagine International Reinsurance Ltd., Dublin, Ireland. The arrangement would be completed through a 75% quota share arrangement. In July, according to the NU Web item, Imagine agreed to reinsure Penn Treaty’s in-force LTC business.
But others in the life reinsurance market are less sure.
It would be surprising if payout annuities or LTCI became large areas for reinsurers, says Wilton Re’s Stroup. Long tail morbidity risk is a difficult area for reinsurers to control, he adds, and discrete changes to assumptions can make large differences.
Direct Writers Respond
These trends continue to make many direct writers bridle at the change to the way business traditionally has been conducted.