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August 31, 2008 at 04:00 PM
U.S. ordinary reinsurance assumed dropped a notable 13%, falling to $747.9 billion in 2007 compared with $860.3 billion in 2006, according to an annual reinsurance survey of 21 reinsurers.
The survey is prepared annually by Munich American Reassurance Company, Atlanta, a unit of Munich Re Group. It is prepared at the request of the Society of Actuaries, Schaumburg, Ill.
David Bruggeman, assistant vice president and actuary with MARC, says direct companies are raising their retention rates.
Indeed, over the past several years, reinsurers have noted a number of factors that have affected the amount of business being reinsured, including price increases to more accurately reflect risk, reduced reserving requirements resulting from Triple-X regulation of level term and UL products, competition from reinsurance alternatives such as securitizations, and a growing tendency to retain rather than reinsure risk.
The retention amount has increased since 1998 when the rate was 48.7% through 2007 when the retention rate had grown to 63.9%, according to a recent MARC presentation.
All 3 categories of reinsurance–recurring, portfolio and retrocession–experienced declines.
Recurring reinsurance dipped to $682.9 billion in 2007 for responding reinsurers, compared with $724.3 billion in 2006, a 5.7% decline, according to the annual survey. Recurring production has not been so low since 1998, MARC notes.
Recurring reinsurance business grew as much as 44.6% in 1997, gradually declining to negative 0.6% in 2004. In 2005, there was a steep 18.7% decline, with a smaller 14.2% drop in 2006, followed by 2007′s 5.7% decline.
The data culled by the SOA and MARC indicate that in 2007, 83% of the U.S. recurring market was held by the top 5 reinsurers, 13% by the next 4 companies and 4% by the remaining 6 companies.
Portfolio reinsurance dropped a substantial 66% to $35.1 billion in 2007 compared with $101.9 billion in 2006. Retrocession business also declined to $29.9 billion in 2007, a 12.5% drop from $34.2 billion in 2006.
The reason, says Bruggeman, is that there were no major blocks of business to assume.
Portfolio reinsurance has been relatively constant between 1997 and 2007 with the exceptions of 2001 and 2004.
Recurring reinsurance is based on contracts that are issued in the same year as the business is reinsured, while portfolio reinsurance is based on contracts issued prior to the year the business is reinsured. Retrocession is the business of reinsuring a reinsurer’s block of business.
The largest total decline in ordinary reinsurance assumed among the companies in the survey aside from Revios Re, which was acquired by SCOR Global Life on Nov. 21, 2006, was Wilton Re, which was off 75.8% in 2007 to $14.9 billion from $61.7 billion in 2006. That decline was driven largely by a drop in portfolio reinsurance which slid to $7.8 billion in 2007 from $53 billion in 2006.
