Reflecting a tightening of the reinsurance market, total ordinary reinsurance assumed dropped 51.33% in 2005, according to data culled earlier this year in an annual industry survey.
For 2006, early predictions are that reinsurance assumed will be stable or down slightly, says David Bruggeman, assistant vice president and actuary with Munich American Reassurance Company, Atlanta.
Each year the survey is compiled in a joint effort of MARC and the Society of Actuaries, Schaumburg, Ill.
Bruggeman says there are several potential reasons for the decline. A decision to re-price reinsurance and increase rates is one possible factor in the decrease, he says.
Another possible reason for the decrease, he continues, is that direct writers of term insurance are seeking reserve relief through means other than reinsurance, such as securitization or by going off-shore.
According to Bruggeman, 2005 was the first time since 1997 that more business was retained than was ceded to reinsurers.
Business reinsured ranged from 25.1% in 1995 to a high of 61.8% in 2000, according to a slide presentation noted by Bruggeman.
The amount reinsured steadily increased in the late 1990s to 25.1% in 1995, 32.1% in 1996 and 42.1% in 1997. In 1998, it leveled at 51.3%. In 2000, there was another jump to 61.8%, after which business reinsured remained around 60% through 2005, when it dipped back down to 50%, according to information provided by MARC.
Results for 2005 indicate that the market is becoming more concentrated. The top 5 writers represented 77% of the reinsurance market and the top 7, 89.4%, Bruggeman says.
In 2005, total ordinary reinsurance assumed dropped to $925.04 billion compared with $1.9 trillion in 2004, the survey indicates.
Recurring ordinary reinsurance assumed declined to $843.7 billion in 2005 from $1.04 trillion in 2004, the survey finds. Portfolio reinsurance dropped to $38.7 billion in 2005 from $831.7 billion in 2004. Retrocession business grew to $42.6 billion in 2005 from $31.2 billion in 2004.
Recurring reinsurance is reinsurance that covers an insurance contract with an issue date in the year in which it was reinsured, while portfolio reinsurance covers an insurance policy with an issue date in a year prior to the year in which it was reinsured. Retrocession reinsurance is not directly written by the ceding company.
Percentage changes for totals in these categories were as follows: recurring ordinary reinsurance as a percentage of total ordinary reinsurance assumed was 91.2% in 2005 compared with 54.6% in 2004; portfolio insurance as a percentage of total ordinary reinsurance assumed was 4% in 2005 compared with 44% in 2004; and retrocession reinsurance as a percentage of total ordinary reinsurance assumed was 4.6% in 2005 and 1.6% in 2004.
While reinsurance assumed was on the wane, reinsurance in-force posted an increase. Total U.S. ordinary reinsurance in-force amounted to $6.83 trillion in 2005 compared with $6.5 trillion in 2004, a 5% increase.
Recurring reinsurance in-force totaled $5.9 trillion in 2005 compared with $4.9 trillion in 2004, a 20% increase.
But a decline in portfolio reinsurance in-force offset the large increase in recurring reinsurance in-force. Portfolio reinsurance in-force declined to $723.4 billion in 2005 compared with $1.39 trillion in 2004, a 47.9% drop.
The decline, according to a slide presentation developed by MARC’s Bruggeman, suggests that portfolio business is down because there were no major acquisitions or big block deals in 2005.
Retrocession reinsurance increased slightly, edging up 5% to $239.9 billion in 2005 compared with $227.7 billion in 2004.
U.S. group reinsurance assumed and group reinsurance in-force declined in 2005 over 2004.
Total U.S. group reinsurance assumed declined to $41.1 billion in 2005, a 24.5% decline from $54.4 billion in 2004. The decline was largely accounted for by a decline in new group business reinsured. New business dropped to $36.1 billion in 2005 from $47.7 billion in 2004, a decline of 24.3%.
Group in-force business declined in 2005 to $166.6 billion from $177.7 billion in 2004, a 6.7% decline.
The Canadian market, according to Bruggeman, may be where the U.S. was several years ago, with competitive pricing on a first dollar quota share basis that would encourage direct writers to reinsure business.
In the Canadian market, ordinary reinsurance assumed grew to $118 billion, a 14.3% increase over 2004′s $103.3 billion. That growth was largely fueled by recurring reinsurance, which grew to $110 billion in 2005 compared with $100.4 billion in 2004, a jump of 10%. Portfolio ordinary reinsurance assumed jumped to $987 million from a base of zero in the same 2005 over 2004 time period.
Retrocession ordinary reinsurance assumed grew to $7 billion in 2005, 140% over 2004′s $2.9 billion.
Ordinary reinsurance in-force in Canada grew to $751.7 billion in 2005, a 14.5% change over 2004′s $656.7 billion.
Broken out, the largest increase in ordinary reinsurance in-force was attributable to recurring reinsurance, which grew to $724.2 billion in 2005 compared with $634.4 billion, a 14.2% increase. Retrocession reinsurance in-force also experienced a sizeable increase, growing to $27 billion in 2005, 23.4% over 2004′s $21.9 billion.
Canadian group reinsurance assumed increased to $22.2 billion in 2005, a 27% change from 2004′s $17.5 billion. New group reinsurance assumed grew to $17.7 billion in 2005, up from $14.8 billion in 2004, a 19% increase.