Life reinsurer of the future Staying relevant in the face of a changing landscape

Transcription

1 Life reinsurer of the future Staying relevant in the face of a changing landscape Shweta Krishna & Stuart Mainland Shweta Krishna & Stuart Mainland This presentation has been prepared for the Actuaries Institute 2015 Actuaries Summit. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.

2 Life reinsurance in Australia Agenda Life reinsurance globally The future horizon So what do we learn?

3 Life reinsurance in Australia

4 What drove reinsurance? Then Now Then Now Access to underwriting manual and claims experience Capacity the primary market may not have Reduce earnings volatility / capital strain -! - More aggressive reinsurance pricing Re-shape risk taken to align to insurer s risk appetite Global, technical insights -! - Reasons to reinsure in the past remain relevant today

5 Reinsurer % of in-force premium Changing business mix during 2000s 50% 41% 33% 24% 15% Oct-18 Oct-17 Oct-16 Oct-15 Oct-14 Oct-13 Oct-12 Oct-11 Oct-10 Oct-09 Oct-08 Oct-07 Oct-06 Oct-05 Oct-04 Source: Plan For Life statistics Total risk Group risk Individual lump sum Individual disability income Reinsurance rate relatively stable but business mix has changed

6 Continued strong premium growth In-force premiums have more than doubled in last ten years. 4, In-force premium for reinsurers ($million) 3, , , Oct-18 Jan-18 Apr-17 Jul-16 Oct-15 Jan-15 Apr-14 Jul-13 Oct-12 Jan-12 Apr-11 Jul-10 Oct-09 Jan-09 Source: Plan For Life statistics Individual lump sum Individual disability income Group risk Volume growth has been attractive; at what price?

7 $ million Cedant & Reinsurer Annual Net Profits - Individual DII Turbulent times $ million Cedant & Reinsurer Annual Net Profits - Group Death/TPD Profit Margin % (net) Reinsurer Direct Writer Profit Margin % (net) Reinsurer Direct Writer Source: APRA Life Risk Insurance A challenge to the life industry: managing for long term portfolio health: Insights Session at Actuaries Institute by Ian Laughlin

8 Causes of losses Different break-even points and materiality Competitive market conditions Less data / less timely data Definitions scope creep Long guarantee periods Pricing discipline needed in a competitive environment

9 Life reinsurance globally

10 Looking sideways global snapshot North America 24% of global life premiums Cession rates c25% New reinsurance business tends to be reviewable premium though historically coinsurance UK & Ireland 8% of global life premiums Cession rates 80%+ Underlying business tends to be level premium Continental Europe 28% of global life premiums Cession rates <10% Generally surplus reinsurance with high retention limits Asia 34% of global life premiums Cession rates 5-15% Reinsurance primarily risk premium Australia 2% of global life premiums Cession rates c40% Annually reviewable premiums Reinsurance generally quota share Premium source: Swiss Re Sigma 2013 / 3 Cession rates: NMG data presented in Actuary magazine Market commentary: EY research

11 Looking sideways what is there to learn Cession rate Market features Feature of Australia Likely to change %! Regulatory arbitrage! Reinsurer risk evaluation aggressive! Proportional reinsurance dominant??? 20-60%! New business strain! Volatile earnings! Periods of pricing instability? 0-20%! Barriers to entry! Lack of granular data! Surplus reinsurance dominant! Language barriers Market conditions unlikely to see large-scale movement in cession rates

12 The future horizon

13 Dark clouds? Consolidation of insurers Top 5 insurers in 2003 had $2.9bn premium and in 2014 had $9.5bn premium. Less reliance on reinsurer claims and underwriting expertise? Alternative sources of funding Offshore reinsurers Institutional investors seeking higher risk/yield assets Changes to remuneration model

14 Case study cession rates and the pricing cycle 80% US ordinary individual life % new business reinsured 60% Rapid growth in reinsurance Market corrections Cession rates fall 40% 20% 0% Correlation between attractiveness of market and reinsurance? Source: Cession rates from Munich Re Life Reinsurance survey; market commentary from EY research

15 Blue skies? Significant re-pricing in recent years IFRS 4: potential to offset new business strain Increasing digitisation and global connectivity Change in product emphasis; the rise of the annuity Growth of direct channel

16 Summary

17 The future landscape A number of dark clouds on the horizon but blue skies also Mix of business may change Volume growth has been strong, as is underlying need for risk transfer and value add services Australian market remains attractive at global level

18 What can reinsurers do? Pricing discipline in the face of competition Aligning break-even points Re-aligning definitions and practice to price (and vice versa) Choosing segments of the market to target Capital efficiency to stay ahead Explore direct opportunities where insurers choose not to play Promotion of value add activities; harnessing global resources

19 Questions, discussion, comment