One of the most readily apparent lessons of the financial crisis is that even the most unlikely of risks are, at the end of the day, still risks. Few understand this better than life insurers now in the position of trying to rid themselves of a gullet full of allegedly safe investments.

A new study from Hartford, Conn.-based Conning Research, "Life Reinsurance: Opportunities for Growth in a New World" examines how life insurers can utilize reinsurance as a means to lower their risk exposures.

"Life insurers and their customers have a heightened level of risk as a result of the financial crisis that began in 2008," says Terence Martin, analyst at Conning Research & Consulting. "The increased concern over risk profiles is changing the market for insurance and reinsurance products. Customers feel at greater risk, so will seek more comprehensive products from insurers. Moving upstream, insurers will look to reduce their own risk profile by using a variety of reinsurance services."

Yet, Conning acknowledges significant challenges for both insurers and reinsurers. One is capacity, with demand for reinsurers’ knowledge and skills likely to be at a premium. Conning notes that regulatory and rating agencies are focusing on security and improved capital positions for insurers, further increasing demand.

This ever-evolving regulatory environment in which insurers and reinsurers operate will also present additional challenges, as companies will have to respond to changes in both federal and state regulations. The largely multinational reinsurance market will also be buffeted by shifting accounting regulations, tax proposals and the upcoming Solvency II regulations in the EU.

Moreover, a supply problem exists as reinsurers’ capacity to assume risk was adversely affected by the financial crisis. Tightly constrained capital markets will limit growth by reinsurers and add to the price of assuming risk. With rising demand and a limited supply, a hardening market seems inevitable. In this risk-saturated environment, reinsurers will be pressed to maintain strict underwriting discipline.

"Demand for life reinsurance had slackened from 2003-2008," says Stephan Christiansen, director of research at Conning. "That will almost certainly change now with the altered industry risk profile, and demand for reinsurance companies' capital relief and risk absorption products is facing a turn of a cycle. As a result, reinsurers have opportunities to tailor products to meet the needs of specific companies, particularly while capital from other sources is constrained." 

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