LIFE REINSURANCE SECTOR REVIEW
Chart 3: Direct Life Premiums Written By Region Advanced Asia
Western Europe (%) 100
10 20 30 40 50 60 70 80 90
0 1962
© Standard & Poor's 2014. Source: Swiss Re Sigma.
1982 2002 2012 2023 China Emerging Asia, excluding China North America, Oceania Non-Asian emerging markets
insurers have more capacity and greater willingness to retain risks, depending on the level of capital charges and the extent of diversification benefits under the new regime. Specifically, the economic principles underlying Solvency II could encourage direct insurance writers to retain more mortality risk as diversification against other risks.
The European Union is in the process of adopting Solvency II, while jurisdictions outside the EU are adopting elements of it as they implement International Association of Insurance Supervisors standards and principles. The current timeline suggests that Solvency II will go into full effect in Europe at the beginning of 2016.
Asia-Pacific Is The Area To Watch For Long- Term Growth
Chart 4: Market Share In Australia
100 (%)
10 20 30 40 50 60 70 80 90
0
© Standard & Poor's 2014. 2010
2011 2012 Swiss Re Munich Re RGA Hannover GenRe
However, longevity business and other nontraditional products, such as critical illness or disability insurance, are significant opportunities given the region’s aging population, growing direct pension business, and declining state protection. Life insurance penetration is much lower in Central and Eastern Europe. Although this market is currently smaller and less significant for life reinsurance business, we believe opportunities could arise there in the longer term as direct insurance markets expand and demand for risk transfer increases. Meanwhile, the rollout of Solvency II—Europe’s proposed economic principles-based regulatory solvency regime—may be a double-edged sword for reinsurers. On the one hand, it will likely create near-term business opportunities in
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the preparation and early implementation phases, when reinsurance may be one of the few options available to insurers that need to improve their capital positions quickly. The life reinsurance industry has already demonstrated its ability to provide capital relief solutions, and we’ve observed a number of such deals for life reinsurers. Nevertheless, the true potential of this business will ultimately depend on the final calibration of the Solvency II standard model, approval of reinsurers’ internal models, and the industry’s adoption of transitional arrangements.
At the same time, the benefits of greater scale and diversification under Solvency II rules could catalyze consolidation among direct life insurers. This may in turn reduce demand for reinsurance if larger life
Asia (excluding Japan) represents a major long-term growth opportunity for the global life reinsurance sector. Low life- insurance penetration rates relative to the more-mature markets in North America and Europe, along with a rapidly expanding middle class with increasing protection needs, has made Asia one of the fastest- growing life insurance markets in the world. Direct life insurance premiums in Asia have experienced significant growth since the turn of the new century, increasing to 9% of total global life premiums in 2012 from just 3% in 2002. Although recent slower economic growth in most Asian economies has caused premium growth to decline somewhat, Asia’s share of global premiums is projected to more than double by 2023 (see Chart 3). Life reinsurance business in Asia has grown in step with growth in the primary life markets in the region. However, local life insurers still don’t use reinsurance nearly as heavily as those in developed markets, in part due to the predominance of savings products in the Asian market. We believe the need for mortality life reinsurance will increase as the primary markets mature and offer more high-risk products. Moreover, tighter solvency regulations could cause insurers to turn increasingly to reinsurance for solvency relief, which we’ve begun to see in recent years. Demand for reinsurance of risks related to pandemic disease is still limited in the region, and will likely lead to long-term growth as well.
Trouble Spots In The Past And Present If the life reinsurance sector is to maintain its credit strength, it must continue to learn
Global Reinsurance Highlights 2014
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