Market size in USD billions
Estimated global premium income in 2012
Global life reinsurance premiums totalled slightly over USD 50 billion, 70% of which came from the US, Canada and the UK.Ceding companies from emerging countries accounted for only 6% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business, which is currently flat.
Unlike the stagnating primary life insurance industry, the life reinsurance industry saw an increase in premium income of 4%. Although life reinsurance is mostly linked to the relatively stable protection business, business volume was boosted by increasing demand for non-traditional reinsurance transactions, such as block deals, longevity risk transfer and capital relief solutions.
Estimated global premium growth in 2012
Block transactions help primary insurers to unwind those parts of their portfolios that they no longer sell. The market for longevity risk transfer continues to show strong growth, albeit from low volumes. There is also substantial demand for reinsurance solutions as a means to manage the capital strain put on primary life and health insurers by the macroeconomic environment.
Nevertheless results are suffering from adverse capital market conditions, with dwindling investment income eroding overall profitability. In 2012, the industry average life reinsurance pre-tax operating result declined to about 8% of net premiums earned, compared to 10% in 2011 and 9% in 2010.
On fundamentals, the outlook for 2013 is unchanged from 2012. A volatile macroeconomic environment will make it difficult to improve life reinsurance profitability. On the other hand, increasing pressure on a number of primary life insurers is expected to generate a steady demand for capital solutions and other forms of non-traditional reinsurance.
Longevity creates new source of demand
The market for longevity risk transfer continues to show strong momentum, as reinsurers develop new solutions for private and public pension plans as well as for primary companies with annuity business.
During 2012, clients transferred more than USD 20 billion in longevity liabilities through publicly disclosed longevity reinsurance and swap transactions; this compares to USD 9 billion for the full year in 2010 and USD 15 billion for 2011. The market is most active in the UK, although there have been large deals in continental Europe and transactions with Australian and Canadian insurers.
Longevity reinsurance activity is expected to grow in other markets as well, including the Netherlands, Switzerland and the US, where there is significant potential demand, particularly from pension funds.