Life reinsurance has traditionally been written without the aid of a broker, but intermediaries are increasingly becoming involved in transactions. By Sarah Goddard.
Compared to the non-life reinsurance sector, the life business in general has kept a pretty low profile. However, in recent years there has been a boom in business; according to Bob Garolfalo of AM Best, life reinsurance has outpaced the primary life market by "a fair amount," showing about a 15% growth rate per annum. Although he expects this rate to slow down - "it can't outgrow the primary market forever," he pointed out, reasonably - it has still attracted attention from other quarters.
So far, the broking community has seen opportunities in niche areas such as accident and health business, but brokers are beginning to look further to offer their wares. For example, Guy Carpenter has set up a global life and annuity practice with the aim of providing "the same kind of value added as to the property/casualty industry," according to its head, Ron Colligan. Over the past 25 years, the life industry has shifted from captive agency arrangements to independent agents representing a number of companies, he explained. "There is a natural extension of that, whereby the independent intermediary representing only the buyer of reinsurance can be valuable,"
During the course of last year, Guy Carpenter undertook a global push in its life reinsurance business, headquartered in New York. With a central location in Connecticut peopled with actuaries and marketing specialists, Guy Carpenter has put life specialists in three US offices in Dallas, Minneapolis and Seattle, the UK, France, Belgium, Spain, Australia, South Africa, Argentina, Chile and Mexico. "The two markets in the world that are among the quickest developing are South American and Asia," in life business, said Mr Colligan. In South America in particular, there is a wave of privatisation of pension schemes in countries such as Chile and Argentina, and Marsh, Mercer and Guy Carpenter recently have been involved in Bolivia's privatisation process.
Aon Re Life is another broker expanding its international operations, in a move which its head, Joseph Kolodney, described as "still a new trail being blazed." Again, the progressive privatisation of pension plans is offering new opportunities, and Mr Kolodney saw the broker's role as identifying client opportunities and the range of mechanisms which can be used. He does not, however, see Aon Re Life's role as a pure consultancy. "We are brokers, no mistake about it," he said, "but you can't be a good broker unless you're a good consultant." This includes a full dialogue with the client, he said, identifying opportunities and problems, and undertaking substantial internal modeling.
Aon Life Re's focus is still very much on North America and Europe, including deals in the UK, France, Italy, Switzerland and the Netherlands. Again, the shift from state supported retirement schemes in Europe to private pension provision is causing more individuals to turn to the life insurance market. Governments in certain European countries are offering individuals tax incentives to purchase life-based products, and "people will always buy a product with tax advantages," observed Mr Kolodney. "The younger generation has more family responsibilities and a different social safety net," with greater longevity to take account of.
AM Best's Mr Garofalo is sceptical about how much value brokers are able to bring to the life reinsurance sector, but conceded, "they can bring buyers and sellers together." As the primary life market looks to balance sheet restructuring and moves blocks of business out into the reinsurance market, the broker's role may be limited by prior relationships already forged between the primaries and reinsurers. However, the increasing competition between life reinsurers, partly as a result of consolidation in the primary markets, and the growing privatisation of social security programmes, could be a starting point for a new role of the life reinsurance broker.
By Sarah Goddard
Sarah Goddard is the editor of Global Reinsurance.