Life & health reinsurance

Market overview

The size of the global life reinsurance business was around USD 75 billion in 2018. Most (62%) of this is attributable to the US, Canada and the UK. Ceding companies from emerging markets accounted for 20% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.

Market performance

The life reinsurance industry registered a 2% increase in 2018. Underlying reinsurance premium growth in traditional reinsurance areas like mortality and morbidity risk has again remained relatively subdued, but also other kinds of reinsurance transactions were sluggish this year. In mature markets, slow increases in the US were contrasted by healthy growth in Europe and Asia/Pacific. Growth in the emerging markets regions were significantly impacted by the decline in cessions in China of around 10%, offsetting expanding reinsurance demand from other regions.

Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has prompted much of this activity. In Europe, for example, Solvency II has underpinned interest in reinsurance to reduce required regulatory capital or to economise on reserves.

Another area of growth for reinsurers has been longevity risk transfer. The availability of longevity reinsurance has become key to the pricing of annuity transactions, as insurers offering those transactions to pension funds typically look to simultaneously access reinsurance capacity to hedge at least part of the associated longevity risk inherent in these lines.

The operating margin of the life reinsurance industry improved to 8% of revenues in 2018, slightly up from the 7% achieved between 2015 to 2017. The contribution from investments further declined, due to the ongoing low interest rate environment, while underwriting performance improved.

Outlook

Continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional renewable term business. Premium growth will nonetheless likely remain modest, especially in the large advanced markets. In real terms, global life reinsurance premiums are forecast to increase by around 2% in 2019 and 2020.

Premiums in the advanced markets are projected to expand by below 1% annually, driven by developments in the US where cession rates continue their long-term down trend and growth in the primary market remains weak. In Western Europe, where cession rates are usually lower, reinsurance premiums are forecast to grow by about 1%. The strongest contribution to real growth in the advanced markets will likely come from developed Asia.