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October 15, 2006 at 04:00 PM
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.
