XL‘s new U.S. life reinsurance operation will help the Bermudian insurer and reinsurer offset volatile earnings in the property/casualty part of its business. XL Re Life‘s CEO is confident the new unit can win business in the heavily consolidated US life reinsurance market.
The company announced its expansion into the U.S. life reinsurance market on March 17. It acquired Servus Life Insurance Company, which it will rename XL Re Life America. Robert Douglas, CEO of XL Re Life, says the new unit’s initial focus will be on traditional individual mortality reinsurance treaties.
“XL Re Life is interested in developing life reinsurance business primarily to build up a block of long term stable earnings, as some element of counterbalance to the more volatile and short-term earnings from property/casualty reinsurance,” he says. “Consolidation in the U.S. life reinsurance marketplace and a degree of improved market discipline have led to a situation where we believe that there are now good prospects for profitability of life reinsurance business.”
Douglas says XL’s life reinsurance business has been developing successfully in the U.K. and the company has been examining opportunities in the U.S. for a while. U.S. cedants are crying out for more options when placing their reinsurance. Because of consolidation, the top five players now have a 77% market share of in-force business, up from 58% in 1998. Douglas believes XL can take advantage of this situation.
“Historically one of the biggest challenges facing a new life reinsurer has been access to business. We know from current experience that this will almost certainly not be an issue for us,” he says. “The consolidation in the U.S. life reinsurance market and the consequent desire of many direct insurers to spread their reinsurance counterparty risks more widely has led to a real demand for good quality new capacity in the market. Our position is significantly enhanced by the recruitment of an experienced team of eight life reinsurance professionals who are well known in the U.S. market.”
Douglas would not provide an idea of the new unit’s targets. But he believes there is an increased amount of discipline in the market following years of excessive competition. He believes XL will avoid the mistakes made by Annuity & Life Re, which is now in run-off.
“The next-biggest challenge is to maintain an acceptable level of profitability,” he says. “XL Re Life’s focus is upon profitability and not volume or market share. If the market were to become excessively competitive again, then XL Re Life would simply have to reduce its levels of new business production. Because the company is looking to life business to produce long term stable earnings, it will simply be unacceptable to write business on unprofitable terms.”
XL Re Life America has been issued an A rating by AM Best.