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February 03, 2008 at 02:00 PM
Stranger-originated life insurance, concentration risk, and the credit risk crisis were 3 of the top concerns reinsurers and retrocessionaires mentioned as having the “most profound impact” on the sustainability of their business during the first 3 quarters of 2007, according to a recent survey conducted by Pelecanus Strategic Advisory Services, Toronto.
The preliminary results of the survey of 10 reinsurers and 4 retrocessionaires were presented by Gaetano Geretto, president of Pelecanus, during a reinsurance executive roundtable sponsored last month by the American Council of Life Insurers, Washington, in Naples, Fla.
The survey, conducted in December 2007 and January 2008, covers 4 themes: strategic issues, stakeholder management, sustainability, and risk management. The participants in the survey, according to Geretto, represent 58% of the new business assumed and 57% of the in-force business in the U.S. life reinsurance market, as measured by the 2006 survey of life reinsurers conducted by Munich American Reassurance Corp., Atlanta.
With regard to sustainability in response to environmental factors, 10 of 13 respondents cited the success of STOLI and investor-owned life insurance (IOLI) as having the “most profound impact” on their businesses. The score assigned was 1.80 where 1 represents the greatest impact and 5 the least impact.
Six of the 13 respondents cited concentration risk with a score of 2.5, and 7 named the credit risk crisis with a slightly lower importance score of 2.57.
With regard to strategic issues, all 14 respondents agreed that over the first 3 quarters of 2007, individual mortality YRT was the most important business line to the life reinsurance industry’s success, giving the product line a 1.29 ranking. Individual mortality co-insurance followed with 12 respondents ranking it 1.75 out of a possible 5. Corporate-owned life insurance ranked third with 6 respondents giving it a ranking of 3 out of a possible 5.
In a similar survey based on 2005 data, answers indicated that individual mortality YRT and individual mortality coinsurance ranked 1 and 2, while indemnity reinsurance (blocks) ranked 3 and COLI, 5.
Responses relating importance to the respondents’ own companies indicated that in both 2007 and in 2005, the 3 most important business lines were individual mortality YRT, individual mortality co-insurance and lines involving international diversification.
One statement that 12 respondents said “most represents the strategic issue of most importance over the first 3 quarters of 2007″ related to “reinsurers working with clients to recognize the real cost of underwritten risks.”
That statement addresses the issue of reinsurers offering reinsurance at a price they believe is fair so that direct writers will have the availability of reinsurance capacity they desire and creates a “win-win relationship for both parties,” explains Geretto.
