Best’s Briefing: U.S. Life Reinsurance Market Outlook Remains Stable

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best is maintaining a stable outlook for the U.S. life reinsurance market for 2018, as the operating performance and capitalization of the major life reinsurers operating in the U.S. marketplace has remained steadfast, underpinned by modest premium growth, mortality experience that remains within pricing parameters and very strong and defensible market positions.

The Best’s Briefing, titled, “Market Segment Outlook: U.S. Life Reinsurance,” notes that the stable outlook, which was first assigned in late-2015, is being maintained despite A.M. Best’s negative outlook on the U.S. life/annuity industry, due mainly to fundamentally different mechanics between the two market segments. Life reinsurers take less risk on the investment portfolio given the significant insurance risk they assume from their clients on the liability side of the balance sheet.

The wave of consolidation that occurred over the past decade has run its course, leaving five dominant players that control of four-fifths of assumed life premium for the industry. Four of the five largest U.S. life reinsurers are subsidiaries of higher-rated, tier 1 global reinsurers, all of which (Munich Re, Swiss Re, Hannover Re, and SCOR) carry a stable outlook from A.M. Best. While Reinsurance Group of America (RGA) is not part of a large multinational group, it has a longstanding solid market position in the U.S. mortality reinsurance space and also has a stable rating outlook.

These life reinsurers are generally where direct writers look first to place business due to their large highly rated balance sheets, strong treaty and facultative capabilities, and the ability to customize solutions to help companies optimize their capital management strategies. The U.S. life reinsurance market presents significant barriers to entry as new entrants are not known, generally have lower ratings, and historically have had operational challenges, leading in some instances to insolvency.

However, there does continue to be interest by new entrants, but their business models are primarily focused on asset accumulation as opposed to mortality. Such companies are often backed by investment managers with expertise in certain asset classes and have a greater risk appetite. Their business models are predicated on offering attractive prices to buy annuity business. Cedants, though, may not be comfortable with more aggressive investment strategies because in case of insolvency, business and the assets in support of that business may revert back. While there is a potential for such companies to acquire significant assets, their focus is not life reinsurance, and thus A.M. Best does not expect to see meaningful disruption in the space.

For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=269392.

A video interview with Michael Adams, senior financial analyst, about the U.S. life reinsurance industry also is available.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20180108005296/en/

A.M. Best

William Pargeans, +1-908-439-2200, ext. 5359

Director

[email protected]

or

Thomas Rosendale, +1-908-429-2200, ext. 5359

Director

[email protected]

or

Christopher Sharkey, +1-908-439-2200, ext. 5159

Manager, Public Relations

[email protected]

or

Jim Peavy, +1-908-439-2200, ext. 5644

Director, Public Relations

[email protected]

Source: A.M. Best