Under capital relief deals, reinsurers assume risks, such as mortality claims on a life insurance portfolio, for a defined period of time in return for a share of future premiums. Those transactions, mainly in North America, have driven premium growth over the past three years, said Joachim Wenning, management board member responsible for life reinsurance.
“We expect that growth to continue, albeit growth rates will come down from the pace seen in the past,” Wenning said in an interview in Munich. Life reinsurance premiums at Munich Re rose almost 11 percent to 5.3 billion euros ($6.9 billion) in the first half of this year.
Reinsurers including Munich Re, Swiss Re Ltd. (SREN), Hannover Re and Scor SE (SCR) have been expanding life reinsurance to complement more volatile property and casualty business, where a number of natural disasters, such as last year’s earthquake and tsunami in Japan, have boosted claims. The deals, which help life insurers remove risks from their balance sheet to bolster capital buffers, are helping to underpin earnings at Munich Re.
Profit at the life unit, which contributes 39 percent of Munich Re’s reinsurance premium income, advanced 3.5 percent to 267 million euros in the first half. That compares with property and casualty reinsurance profit of 1.03 billion euros, after a year-earlier loss of 734 million euros.
“Our life reinsurance business adds increasingly to the group’s earnings as we strictly adhere to Munich Re’s profitability requirements for a minimum return of 15 percent on risk-adjusted capital,” said Wenning, 47, who joined Munich Re in 1991. “Currently, our average return on that basis is about 20 percent.”
Munich Re, led by Chief Executive Officer Nikolaus von Bomhard, in August raised its forecast for this year’s gross premium income at the reinsurance unit by 1 billion euros to 27 billion to 28 billion euros.
Some capital relief deals, which typically run for three to five years, are up for renewal soon, said Wenning, adding that the Munich-based company is “optimistic” it can retain the business.
“We don’t see a huge potential for additional growth in the U.S.,” Wenning said. “The market is highly competitive and we already have the business that meets our profitability requirements. I don’t see a strategic reason for us to acquire a competitor there, unless an opportunity which meets our profitability demands comes up.”
Assicurazioni Generali SpA (UCG) plans to seek a buyer for its U.S. life reinsurance business as Chief Executive Officer Mario Greco works to restore the profitability of Italy’s biggest insurer, people knowledge of the process said in August.
Generali has hired Citigroup Inc. to advise on a sale of Generali USA Life Reassurance Co. and the unit may be worth $800 million to $1 billion, said the people, who asked not to be identified because the process is private.
“We would rather buy life reinsurance portfolios than whole companies,” Wenning said.