Best’s Special Report: The Emergence of U.S. Mortgage Exposure in Reinsurance

OLDWICK, N.J.--()--U.S. mortgage insurance exposures, which generally have been an low penetration area for reinsurance companies, have now become very pronounced in reinsurers’ lines of business, and A.M. Best expects to see more of the U.S. government-sponsored enterprises’ mortgage risks in the reinsurance market, according to A.M. Best’s annual special report on the global reinsurance industry.

The Best’s Special Report, “Down But Not Out: Reinsurers Look to Reposition Amid Market Disruption,” explores the state of the industry as a whole and in specific markets, as well as emerging trends such as U.S. mortgage exposure in reinsurance. Key factors driving this phenomenon include: a) the mandate by the Federal Housing Finance Agency requiring the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, to cede more of their pooled loans to the private sector; b) soft market conditions in the property/casualty reinsurance sector, driven by falling rate-on-line on property catastrophe exposures and competition from the alternative capital sector; and c) current U.S. housing pricing conditions, which likely has contributed to increased demand.

As a result, supply and demand conditions have created a favorable outcome with reinsurers being the beneficiaries of the insurance-reinsurance transactions of the GSEs’ U.S. mortgage credit risk transfer program. As of July 30, 2017, Freddie Mac and Fannie Mae have transferred a combined $12.3 billion in limits or risk in-force to the reinsurance sector.

The report section also takes a closer look at the GSEs’ mortgage credit risk-transfer programs, and details A.M. Best’s approach to calculating capital charges for these programs. In addition, A.M. Best’s recently released draft criteria, “Evaluating Mortgage Insurance,” provides a thorough framework for estimating potential losses and capital charges for A.M. Best-rated reinsurers’ involved in the GSEs’ reinsurance credit risk transfers. The updated draft criteria procedure is available in the methodology section of A.M. Best’s website.

Other highlights from this year’s global reinsurance report include:

  • The most notable movement in A.M. Best’s highly regarded annual ranking of the Top 50 Global Reinsurance Groups was Swiss Re Ltd. supplanting Munich Reinsurance Company as the world’s largest reinsurer, based on reinsurance gross premiums written, a position it has not held since 2009. This year’s report also breaks out two sub-rankings of top non-life and life global reinsurers.
  • Although the growth in convergence capacity has slowed from previous years, it still grew by approximately 10%. A.M. Best estimates that alternative capital represents approximately USD 80 billion of capacity, with the vast majority of capital (USD 345 billion) from traditional sources.
  • The global reinsurance report also includes a discussion among A.M. Best analysts and insurance-linked securities professionals on the state of insurance-linked securities, along with in-depth reviews of the Lloyd’s and life reinsurance markets, as well as geographic regions such as Brazil, Asia/Pacific and Africa.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265357.

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

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Asha Attoh-Okine, +1 908 439 2200, ext. 5716
Associate Director, Insurance–Linked Securities
asha.attoh-okine@ambest.com
or
Wai Tang, +1 908 439 2200, ext. 5633
Director, Insurance-Linked Securities
wai.tang@ambest.com
or
Emmanuel Modu, +1 908 439 2200, ext. 5356
Managing Director, Insurance-Linked Securities
emmanuel.modu@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Associate Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Asha Attoh-Okine, +1 908 439 2200, ext. 5716
Associate Director, Insurance–Linked Securities
asha.attoh-okine@ambest.com
or
Wai Tang, +1 908 439 2200, ext. 5633
Director, Insurance-Linked Securities
wai.tang@ambest.com
or
Emmanuel Modu, +1 908 439 2200, ext. 5356
Managing Director, Insurance-Linked Securities
emmanuel.modu@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Associate Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com