The amount of life reinsurance purchased has declined each year since 2002. The movement toward lower-reserve products supports this trend, as reserve management has historically been a significant value driver for reinsurance.
Reinsurance pricing in this sector is model-based and reflects recent experience where possible, so it is rare to see big shifts in competitiveness due simply to capacity. However, reinsurers have unique and complex pricing models, creating pricing differences for certain blocks of business. Further, each reinsurer may have very different timing in updating their models to reflect changing outlooks on major pricing factors like interest rates, mortality and lapse assumptions. This dynamic created significant volatility in pricing between reinsurers and within the same reinsurer for different quotes or renewals. We expect more stability, as all major reinsurers have now completed a fairly comprehensive pricing review.
Activity in the market was slowed somewhat as major players focused significant resources on a few very large in-force opportunities and one leading reinsurer looking for a buyer.
While pricing remains disciplined, reinsurer appetite can be seen in other ways. Companies are more open to looking at in-force transactions that we have seen in the recent past. They are also offering slightly better terms in many cases, including higher automatic binding limits. Finally, they are spending more time exploring new product/risk offerings and ways to diversify their business.
In an almost universal trend, both insurers and reinsurers are increasing their retentions -seeking to maximize underwriting profits. This is starting to put pressure on retrocessionaires, creating very high risk concentrations in relatively few policies.