Market overview

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.

Market performance

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.

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.

Outlook

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.