Consolidation and declining growth have been a big part of the narrative in the global life reinsurance sector for more than a decade, but this story line may have finally reached its climax in 2013. With SCOR SE’s acquisition of Generali USA Life Reassurance, Standard & Poor’s Ratings Services sees no opportunities for further significant mergers and acquisitions (M&A) on the horizon. And cession rates (the amount of business direct insurers cede to reinsurers) for mortality lines, which had been shrinking in some major life reinsurance markets, appear to be leveling out—which could indicate more stable growth during the next few years. Major longer-term growth prospects are also taking shape, with regulatory controls and solvency requirements in some of the more- promising emerging markets becoming more favorable for life reinsurers.


North America Will Remain The Primary Source Of Near-Term Growth, But Not Without Competitive Challenges Although there are few breakout growth opportunities in the North American life reinsurance market, it remains the largest direct life market in the world in terms of premium volume, and should continue to be the primary source of near-term growth for the industry. A positive development for global life reinsurers is that cession rates in the U.S. individual life insurance market seem to have leveled out at around 27% of total direct life business, based on three-year data through 2013, which should help stabilize what has been a shrinking market since 2002 (see Chart 1). Although competition has increased as reinsurers vie for share in a market that has contracted by nearly two-thirds in the past 10 years, mortality risk pricing has been stable. In Canada, cession rates are higher at around 65%, but new entrants to the market could erode the established players’ share of business over time (see Chart 2). The group life reinsurance market remains attractive to reinsurers, particularly in the U.S. where quoting activity is steady. However, in this line treaties typically are not split between reinsurers, which heightens price competition among competing bidders. The timing and size of purchase opportunities for blocks of in-force insurance business continue to be difficult to predict, and regional players tend to be more competitive in the block acquisition space. Moreover, the potential for attractive


Global Reinsurance Highlights 2014


Chart 1: U.S. Cession Rates (Amount reinsured, %)


10 15 20 25 30 35 40


0 5


2007 2008 2009 2010 2011


Source: Munich American/Society of Actuaries Reinsurance Surveys/LIMRA. © Standard & Poor's 2014.


2012 2013


Chart 2: Canada Cession Rates (Amount reinsured, %)


58 60 62 64 66 68 70 72 74 76 78


2007 2008 2009 2010 2011


Source: Munich American/Society of Actuaries Reinsurance Surveys. © Standard & Poor's 2014.


returns in this space continues to attract third-party capital and new entrants, which increases competition as more capital chases a relatively limited number of deals. Resolution Life made its entry into the U.S. market with its acquisition of Lincoln Benefit Life in April 2014. Other notable M&A in the space this year includes the announcement in March that a subsidiary of Toronto-based Canada Pension Plan Investment Board plans to acquire Wilton Re and the announcement in June that Japan-based Dai-ichi Life will acquire Protective Life Corp. There has been a flurry of M&A activity in this space in recent months, but these deals are not transformational to the marketplace. The longevity and long-term-care reinsurance markets in North America are


seeing increased interest from life reinsurers but remain underpenetrated, which indicates a long-term growth opportunity for the sector. However, global life reinsurers that expand their risk appetite too far from their core mortality reinsurance business could have trouble maintaining their financial strength over time. Their long-term success will hinge on their ability to maintain a sizable base of profitable mortality business while prudently pursuing new risk areas.


Europe Paints A Diverse Picture, With Growth Potential Slightly Outweighing The Challenges


Although Western European markets remain the primary source of life reinsurance business in Europe, mortality markets there are relatively mature, which limits growth.


55 2012 2013


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