Life reinsurance market marked by consolidation

The Canadian and U.S. life reinsurance markets are characterized by consolidation, with three players Swiss Re, Munich Re and RGA dominating the market, according to a new report by A.M. Best. The result has been price and term discipline, but also capacity issues within the marketplace.While the hard market has turned much of the focus to more profitable non-life business, and given the close scrutiny paid to capital deployment since 9/11, European parents have reduced the life reinsurance capacity available to North American markets. In this market, A.M. Best believes there is “ample” opportunity for new entrants, specifically in health reinsurance. But start-ups will face a challenge in raising the US$200-$500 million in capital needed to support business from a hesitant Wall Street, particularly after the failure of Annuity and Life Re. “A.M. Best believes the international life reinsurance market is poised for significantly higher growth than the U.S. market, which over time will decline from current double-digit rates and converge with the single-digit growth rate of the direct market.”In Canada, the market was shaken up by the exit of ERC Life. As well, with a reduced number of reinsurers offering guaranteed critical illness rates, prices have risen 10% or more. “A.M. Best believes that the pricing environment may become even more volatile, depending on the level of support for guaranteed CI rates by retrocessionaires. Other factors driving hardening CI rates include historical aggressive pricing and the expectation that improving medical technology will make cancers more detectable.”Overall, A.M. Best has given a stable outlook to the North American life reinsurance sector.