Reinsurance life

Market overview

The size of the global life reinsurance business was around USD 85 billion in 2019. Around 70% of this is attributable to the US, Canada, the UK and China. Ceding companies from emerging markets accounted for 17% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.

Market performance

We estimate that global life and health reinsurance premiums grew by 3% in 2019. This growth was unevenly distributed between segments and regions. Medical expense reinsurance from emerging markets was up 13%, mainly driven by China and India. In advanced markets, cessions from the US medical expense market drove most of the increase. Globally, this sector grew 7%, contrasting strongly with a more sluggish 1% increase in mortality and health-related reinsurance demand from life insurers.

Against this backdrop, 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. Another area of growth has been longevity risk transfer. The availability of longevity reinsurance has become key to the pricing of annuity transactions. 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 above 8% of revenues in 2019, up from the 7–7.5% achieved between 2015 to 2018. The contribution from investments declined further due to the ongoing low interest rate environment, while underwriting performance improved.

Market outlook

Premium income of life reinsurers are expected to be negatively impacted by declining premiums in primary life in 2020. However, ongoing turmoil in the financial markets could increase the demand for specific risk transfer transactions to bolster balance sheets of primary life insurers.