L&H reinsurance market has traits of oligopoly, says expert

The global life and health (L&H) reinsurance sector has more significant barriers to entry compared to property and casualty (P&C), Robert Mazzuoli, director of EMEA Insurance at Fitch has found.

“The P&C market is easier to enter by having the right amount of capital whereas L&H is more about nurturing long-term relationships and creating tailormade policies,” he said. The increased difficulty in entering the [L&H] market has created an oligopoly in which Europe based Munich Re, Swiss Re, Hannover Re and SCOR occupy 50 percent of the market.

“The oligopolistic nature of the market doesn’t mean it’s lacking competition, however. We are in fact seeing healthier competition. But a new entrant to the market would need the backing of a more established player and the expertise these players bring.”

Mazzuoli noted that these four key companies benefit from diversification as L&H  reinsurance provides earnings that are uncorrelated to P&C reinsurance. “With natural catastrophe events causing heavy losses on the P&C side, earnings from L&H provide a counterbalance so that recapitalisation isn’t needed,” said Mazzuoli, adding that L&H capital is far more resilient than P&C capital.

Mortality risk, the bread and butter business of L&H reinsurance, while mature in Europe and the US, remains significantly underpenetrated in Asia and Latin America, said Mazzuoli.

But Latin America features a smaller market and slower growth rates when compared to Asia which lacks large scale public healthcare and pension systems and therefore represents substantial opportunity for L&H reinsurers. Fitch forecasts 8 percent premium growth a year in Asia over the next two to three years.

The largest short-term risk for life insurers is a large global pandemic, Fitch found. This raises questions on the potential impact of the Covid-19 virus. But, Mazzuoli noted that for reinsurers profits to be impacted by the virus there would need to be a substantial number of deaths in the 2-4 million range. Something that forecasters suggest is unlikely.

“If the majority of victims remain confined to China, which is currently the case, then Europe and US reinsurers would not be affected because of their small market share in the region,” said Mazzuoli. He added that the economic slowdown caused by precautionary measures could have an indirect impact on domestic Asian reinsurers, who could struggle to find new business.