OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has released a new Best’s Briefing titled, “U.S. Life Reinsurers Adjust to Consolidating Market” that looks at fundamental changes in the U.S. life reinsurance market over the past several years, which include a wave of mergers and acquisitions, significant new capital entering the space and cession rates that continue to decline.
The U.S. life reinsurance market has become more concentrated than at any other time in recent history. While large players historically had dominated the market, recent consolidation has more clearly segmented the market into larger versus smaller players. With the backing of SCOR SE (Paris), SCOR Global Life Americas Reinsurance Co., which had been a marginal player, acquired two major properties—the life portfolio of Transamerica Re in 2011 and Generali USA Life Reassurance Co. in 2013—vaulting it into a leadership position in the U.S. life reinsurance market. Such acquisition activity is driven by the challenges to organic growth, which are exacerbated by lower cession rates and the ever present need for additional scale.
After SCOR’s acquisitions, A.M. Best does not expect any meaningful further consolidation of life reinsurers over the near to medium term. With five reinsurers now accounting for approximately four-fifths of total reinsurance volume, the market is highly concentrated and competitive. Counterparty concentration is now more of a concern for direct writers. Although new entrants may be welcomed, the life reinsurance market presents significant barriers to entry. While new entrants have focused primarily on annuity reinsurance and annuity block acquisitions, there have not been any meaningful new participants in the life mortality space in a number of years.
Traditional life reinsurers are focused on their core life insurance underwriting capabilities and generally accept less interest-sensitive business than direct writers. In addition, since life reinsurers’ earnings are driven by mortality results, which have been favorable, their business models do not rely heavily on investment income; thus, they are not as materially impacted by the historically low interest rates as the direct writers. As a result, life reinsurers are less pressured than direct writers for investment yield, although certainly not immune from such pressure, and their balance sheets are generally more conservative. Notwithstanding stable earnings, the extended low interest rate environment is pressuring life reinsurers to increase or at least maintain yield.
For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=230267.
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