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FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 13, 2016 01:59 PM (EST)
A.M. Best has maintained a stable outlook for the U.S. life reinsurance market, as fundamentals within the market remain stable due to acceptable liability risk and a more conservative investment approach, according to a new A.M. Best briefing. The stable outlook is also being held over despite A.M. Best’s recent outlook revision on the U.S. life/annuity industry to negative.
The Best’s Briefing, titled, “U.S. Life Reinsurance Market Maintains Stable Outlook,” notes that the mechanics of the U.S. life reinsurance market are fundamentally different from the primary U.S. life/annuity market, although low growth in the primary market also has negatively impacted the growth potential for U.S. life reinsurers. It is defined by five large carriers that assume the vast majority of U.S life mortality business. In addition, four of the five largest U.S. life reinsurers are subsidiaries of higher-rated, tier 1 global reinsurers, all of which (Munich Re, Swiss Re, Hannover Re, and SCOR) are well-placed at their current rating levels and carry a stable outlook from A.M. Best, or in SCOR SE’s case, a positive outlook.
Over the last decade, the life reinsurance market experienced a wave of consolidation, resulting in a highly concentrated and competitive, but rational, marketplace. The companies that were aggregators have meaningful economies of scale, solid capitalization, and very strong market positions, and offer value-added services. In A.M. Best’s view, consolidation in the life reinsurance market has run its course.
Market dynamics leading to the negative outlook on the U.S. life/annuity industry include the lower-for-longer interest rate environment and the potential for increasing credit transitions or defaults should the current benign credit cycle turn. However, life reinsurers in general are less reliant on investment income to achieve return targets. Given that reinsurers’ earnings are primarily generated by underwriting results and income related to financial reinsurance solutions, life reinsurance companies maintain somewhat more conservative asset portfolios as they are not heavily reliant on net investment yields for most of their product offerings. Therefore, U.S. life reinsurers remain somewhat insulated from impairments arising from investing in riskier asset classes.
The stand-alone outlook for the U.S. life reinsurance market, which first was assigned in late 2015, reinforces the view that the operating performance and capitalization of the major life reinsurers operating in the U.S. marketplace remains stable, underpinned by modest premium growth; good mortality experience, which remains within pricing parameters; and very strong and defensible market positions.
For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=256766 .
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.