|Title:||United States and Canada new individual life reinsurance by segment in US and Canadian dollars and percent change for 2009 and 2010|
Start of full article - but without data
Individual life reinsurance new business production:
2009 2010 Change Ordinary Life
Recurring $XXX,XXX $XXX,XXX -XX.X% Portfolio XXX,XXX XX,XXX -XX.X% Retrocession XX,XXX X,XXX -XX.X% Total Ordinary X,XXX,XXX XXX,XXX -XX.X%
2009 2010 Change Ordinary Life
Recurring $XXX,XXX $XXX,XXX X.X% Portfolio XXX X,XXX XXX.X% Retrocession XXX X,XXX XX.X% Total Ordinary XXX,XXX XXX,XXX X.X%
U.S. Figures in $US millions, Canadian figures in $CD millions
Source: Munich Re/Society of Actuaries Life Reinsurance survey
Anna Manning would like to be able to point to something that indicates the declining cession rate in the U.S. individual life reinsurance market has reached a bottom.
The difficulty, as she simply puts it, is that nothing she can point to would suggest that.
An annual Munich Re survey of reinsurers revealed that the amount of individual life business ceded to reinsurers dropped to XX.X% in 2010, down from XX.X% a year carrier.
Manning, an executive vice president and the head of U.S. markets for RGA, said she won't be surprised if the overall cession rate declines again in 2011.
Just when that bottom may be reached, and its subsequent potential impact on the U.S. individual life reinsurance market, could beg a larger question.
"Right now, there are approximately a dozen life reinsurers in the market actively writing new business," Manning said. "If that cession rate continues to fall off, how many reinsurers can have a viable presence in the U.S. market?"
William Pargeans, an assistant vice president with the A.M. Best Co., said the level of the drop-off was somewhat steeper than anticipated.
"While cession rates have been declining in recent years, we didn't expect the cession rate to fall as much as it did from 2009 to 2010," Pargeans said. "There's clearly less business being reinsured and that may be partly explained by lower term sales and direct writers retaining more risk. We'll continue to look at this trend and closely monitor recurring premium levels to see what kind of impact it will have longer term on insurers' top line growth and, ultimately, profitability."
There is some glimmer of light in terms of new business. A May 2011 survey from Limra indicated that new annualized premium from individual life sales was up X% in the first quarter. Still, it probably is not enough to crowd out the long shadow of consistently declining cession rates.
The more telling data for U.S. life reinsurers was generated through Munich Re's recent Life Reinsurance Survey, prepared annually on behalf of the Reinsurance Section of the Society of Actuaries.
According to the survey, the volume of recurring reinsurance business declined XX.X% in 2010 to just under $XXX.X billion.
Last year marked the eighth-straight declining year for the category, which has dropped off by $XXX billion since 2004.
David Bruggeman, an assistant vice president and actuary with Munich Re, said the other key statistic last year involved declining retrocession levels. Reinsurers in the segment generated just $X.X billion in retrocession cover in 2010, down from $XX.X billion five years earlier.
"I went back and looked through the past XX years and didn't see retrocession levels that low," Bruggeman said.
The survey reports the concentration of recurring-business market share among the top echelon held steady again last year, but Generali USA Life Re managed an XX% increase in production and moved ahead of three competitors--Transamerica Re, Swiss Re and Munich Re--to secure the No. X position behind RGA. After acquiring the business of Transamerica Re from Aegon NV, Scor said it would become the second-largest life reinsurer in the United States.
That churn among the top five writers has been a constant, given that an XX.X% share of a dwindling market remains concentrated in that tier, according to the survey.
Market Analysis Is Key
Despite the fact that RGA's new business production slipped by less than X% to $XXX billion in 2010, the St. Louis area-based life reinsurer increased its market share by almost X%.
Manning said RGA's ongoing objective is in executing on what she feels has differentiated it in the North American market: It's not just about price, but the research, analytic support and other expertise that she feels has fueled the reinsurer's dominating presence in North America's life reinsurance market and the U.S. facultative market.
Manning said although it's hard to get statistics on the facultative segment because there's no official reporting source or database, "anecdotally, we believe that we underwrite twice as much (facultative) business as our next leading competitor."
Like other life reinsurers, RGA is also contending with the fact that many direct writers have grown more comfortable with risk and have become less apt to cede it. When they do obtain reinsurance, they are more inclined to do so through excess arrangements that protect against volatility.
"Those are two key factors contributing to the more recent falloff that you're seeing in reinsurance cessions over the last decade" Manning said.
According to the Munich Re survey, that cession rate for the decade peaked at XX.X% in 2002 and the volume of reinsurance business was twice its current level.
Toward the middle of the decade, a combination of rate hardening and the tightening of terms and conditions helped offset some questionable underwriting activities employed by a minority of companies, according to one seasoned executive.
Chris Shanahan, executive vice president, Mortality Solutions, for Hannover Life Re, said it had become common for some direct writers to lay off XX% of certain risks.
"There was no question that for some companies, again it was the minority, but for some companies, the fact that they weren't keeping much of the risk led to a meaningful loosening of their underwriting integrity," Shanahan said.
Additional controls and parameters that flowed from a tightening of terms and conditions didn't sit well with the direct writers that hadn't been abusing the situation. At the same time, Shanahan said, the capital markets began making a more serious play to provide financing directly to direct market writers, negating the need to finance reserves through a reinsurance option. He said most of the biggest writers of term insurance now deal with this in solutions that they have developed on their own.
Hannover Life Re adjusted to this market need through a strategic maneuver deployed through its financial solutions group.
"What we found is, if that's the model, let's not fight it," Shanahan said. "There's nothing wrong with it. It's not necessarily a better answer to load up your balance sheet with all the financing needs of all these direct writers and then have to go out and find a solution for it."
He said that capital markets and banks have become viable customers to work with, given their interest in assessing the risk on a first-dollar basis. Hannover Life Re is then positioned to work with risk committees and potentially underwrite any excess coverage that may result.
"We've done a couple of transactions that have a variety of flavors around that," Shanahan said. "What we've tried to say is that with the capabilities that we have, we need to look to utilize them in a different way or different order to meet the needs of the market."
Shanahan said his company isn't the only one with this approach, but has managed to eke out ahead. While it marks a growth opportunity, he described it as a solution for the top writers in the industry and not something that would necessarily yield dozens of deals each year for life reinsurers.
Hannover Life Re did manage to increase its traditional life production XX% to just under $XX billion, leaving it well beyond that tier of top-five writers. While it was good enough for a X% market share in 2010, Shanahan said he envisions that market share striving toward XX%. He believes Hannover Life Re's in-force scale, platform and capabilities will enable it to compete with that top tier for business.