LAS VEGAS–A panel of global reinsurance company executives predicted here that in the future, there will be a blurring of the distinction between reinsurers and direct writers of the coverage.
Wolfgang Strassl, head of the divisional unit of the life and health division with Munich Re, Munich, Germany, said there will be a broader framework in which capital markets, reinsurers and direct writers will all be able to provide ways to offer or free up capital.
"I wonder if it will be so definable who is the reinsurer and the direct writer?" he asked rhetorically.
Mr. Strassl and others spoke at ReFocus 2008, the annual life reinsurance conference co-sponsored by the American Council of Life Insurers, Washington, and the Society of Actuaries, Schaumburg, Ill.
Mr. Strassl noted that this blurring effect has happened in the U.S. health market. Legally, there is a distinction, but practically, the two are not distinguishable, he continued.
The trend is global, according to the discussion. Wolf Becke, head of the life reinsurance department with Hannover Re, Hannover, Germany, cited an example in South Africa where a reinsurer is underwriting on behalf of a client at the client's offices. So, he continued, the reinsurer, through outsourcing, is both conceptually and physically taking on the job of the direct writer.
The confusion over defined capital management functions is starting to be seen in other ways, according to Mr. Becke. In the event of a pandemic, the "risk is simply too big to just take on ourselves. We will need the capital markets in order to manage this risk properly."
And, he continued, life reinsurers are focusing on certain parts of the business now, and do not all look alike anymore.
Christian Mumenthaler, head of life and health reinsurance with Swiss Re, Zurich, Switzerland, recounted how Deutsche Bank competed for and won a closed block of business last year as an example of how the businesses of reinsurers and capital market providers is starting to overlap.
Mr. Mumenthaler also said that Triple-X blocks of business are a challenge because in the current market environment, there is a small spread and the costs are high. However, he noted that investment banks are extremely interested in this business.
As other capital providers become more involved in the insurance market, he anticipates seeing the development of indices to measure both longevity and mortality. Currently, he continued, the capital markets are not willing to take that risk at current prices.
Another change that the panel discussed is the development of Solvency II standards in Europe. Mr. Mumenthaler said that "Solvency II is like a tsunami. It is a very powerful force. The U.S. should be a leader rather than trying to avoid it. Europe is not going to stop."
He said further that he is "a big fan" of Solvency II. "It brings the regulatory view much closer to the way that we manage business and see ourselves." One of the biggest risks, he said, is on the asset side of the balance sheet, and the Solvency II framework will look at this better.
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