Donna Kinnaird 20th Annual Executive Conference for Life Insurers

Donna Kinnaird, President of Swiss Re Life & Health America kicked off day two of the 20th Annual Executive Conference for Life Insurers hosted by National Underwriter November 5th & 6th in New York City with a session titled “The Future of Life Reinsurance”.

The presentation began with a history of the reinsurance industry dating back to the 14th century and continuing through today. Ms. Kinnaird emphasized that, “The life reinsurance sector is now part of a dynamic insurance industry that is one of the key foundational elements of the financial services arena and employs more than 2.3 million people and manages over $6 trillion in assets”.

Today, however, the life insurance industry faces significant and unprecedented challenges as a result of the financial crisis. The impact is profound and includes:

  • Reduced excess capital in the life insurance industry. Altogether, $57 billion in statutory capital and surplus disappeared through the 1st quarter of 2009 representing an 18% drop.
  • Low Investment yields. Interest rates are predicted to remain low for the foreseeable future and economists are predicting a slow recovery.
  • Rating agency downgrades for life companies. Over 25% of life companies have received a downgrade with 55% given a negative outlook. There have been no upgrades in 2009.

As a result of these economic factors, the primary life industry is faced with new challenges,” Ms. Kinnaird said, “Many firms are moving quickly to preserve or restore capital.” These measures include firms looking at their balance sheet and exploring opportunities to de-risk by selling assets, increasing the liquidity of their assets, reducing their investment risks and exiting non-core businesses.

In an environment where capital is scarce, primary companies are looking to reinsurance to reduce earnings volatility and provide sources of capital and financing,” Ms. Kinnaird stated. The unsure economic environment has caused companies to go back to basics and look at the viability of their products. Many companies have redesigned or repriced their key products including variable annuities, term life and universal life products.

While companies are still figuring out how they will cope with the financial crisis, they are also looking at the future in a world that has changed significantly over the past year. More than ever, the decisions made now will impact a company’s opportunities for future success. Key drivers companies must consider are:

  • the economic environment
  • shifting demographics
  • changing consumer attitudes

Product demand will be driven by demographic facts. The fastest growing demographic segment is age 55 and over. This segment is currently at 78 million people and is predicted to grow to 100 million by 2020. These individuals are also the people who have accumulated the greatest wealth. As this group ages, there will be a fundamental shift in demand from the current protection and accumulation/savings products to payout and quality of life products. We’re seeing consumers focus on income protection and certainty, and a willingness to accept lower yields for more certainty. Companies need to recognize and prepare for these fundamental changes.

Reinsurers will play a key role in the recovery of the life industry as well as the future growth and viability of the industry. Near-term, we are helping primary life insurers manage through financial crisis by helping them reduce earnings volatility, increase capital, and to finance redundant reserves.

As the population ages,” Ms. Kinnaird said, “there will be a strong consumer demand for products that fund retirement beyond the benefits provided by social security and defined contribution plans”.

In looking to the future, the need for mortality protection continues but with the aging of the population, there will be a growing need for longevity products and retirement solutions. Industry consolidation will accelerate, and life reinsurers will participate and support this consolidation. Finally, when the time is right the reinsurance sector will assist in providing capital market solutions to help insurers monetize future earnings, finance excess reserves and support the transfer of mortality and longevity risks.

There is one thing that is a certainty,” Ms. Kinnaird concluded, “The life reinsurance industry will be there to support primary companies through the financial crisis and to assist in the development of products to meet the needs of an aging society.”

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