RGA breaks Munich Re’s grip on critical illness reinsurance market

By Alain Thériault | August 26 2010 01:22PM

Competition is heating up in the critical illness reinsurance market. RGA Canada says that it has made a significant breakthrough in a sector that Munich Re has dominated for years.

Munich Re's former main competitors in reinsurance of critical illness insurance (CI) risks withdrew from the market about five years ago; Swiss Re stopped underwriting new business, and Employers Re Corporation (ERC) pulled out of Canada. That left the entire standard risk market to Munich Re, with a few niche players for specialized risks. Several industry observers have described the situation as a near monopoly.

However, the market is regaining a certain balance now that RGA Canada is picking up speed in reinsuring new CI sales. RGA decided to get into this market three years ago. According to Micheline Dionne, Executive Vice President and Chief Actuary, the insurer has been successful. Ms. Dionne estimates that RGA held 25% of the Canadian CI reinsurance market at the end of 2009.

She adds that RGA tripled its Canadian CI business between 2008 and 2009 in terms of amount insured, the unit of measurement currently used by the reinsurer. "It is an impressive rate of growth, considering that we only entered this market in 2007," comments Ms. Dionne.

RGA is primarily concerned with reinsuring individual CI products, but also deals in the group market, in both guaranteed and non-guaranteed products. RGA hopes to take advantage of its breakthrough in CI and extend its foothold into living benefits in general.

The reinsurer recently hired Roland Johnson as a vice president who will focus on longevity risks. Mr. Johnson formerly worked with Standard Life, where he specialized in critical illness products. RGA expects to extend its CI line-up to better accommodate the reinsurance of hybrid products where critical illness coverage converts into long-term care insurance when the insured reaches age 65.

Ms. Dionne thinks that RGA's entrance into the CI business has been good for the marketplace. "Clients seem delighted to see an expansion in the supply of critical illness reinsurance in Canada and as a result the market is more competitive."

Munich Re declined to comment on RGA's progress. When asked if it anticipates that more new players might enter the market, the reinsurer was critical of its competitors generally. "Unlike players who entered the market only to subsequently withdraw, we are here to stay," said Hélène Michaud, Assistant Vice President of Marketing at Munich Re, without naming a specific company. "Munich Re has been committed to the critical illness market for more than ten years and that commitment has never wavered."

Munich Re adds that business is good. According to an individual life insurance survey published in June, reinsurance sales have been relatively stable. For their part, Ms. Michaud says that insurers are trying to spread the risk that is inherent to their CI policies. "Despite the recession, the market has experienced growth over the last two years. 2010 looks promising in terms of sales," she says.

Niche players active
When asked about the expansion in the CI reinsurance offering, François Lemieux Executive Vice President and Chief Agent at SCOR Global Life Canada, says the company has noticed that things are changing.
SCOR has been offering reinsurance on individual CI for a year. SCOR has also hired a former Munich Re actuary and living benefits specialist, Francis Lussier, to develop this market.

But results are never immediate. "The development curve lasts at least a year, since insurers do not shop for CI reinsurance every year," explains Mr. Lemeiux. "Our goal has been to become acquainted with them during the first year in order to obtain requests. We are about to underwrite our first business in this sector."

A small player, SCOR does not attempt to compare itself to Munich Re in the individual market. Instead, the reinsurer intends to distinguish itself through its flexibility. "We are open to sharing reinsurance with other insurers. We want to offer product ideas, with a competitive offering in terms of pricing and risk selection," explains Mr. Lemieux.

Optimum Re is another small player that has been reinsuring risks in this market segment. Group CI is one of its specialties. "We have all the capacity necessary to be aggressive in group," comments André Gaudreault, Senior Vice President of Development at Optimum Re. "On the other hand, in individual, we may complement Munich Re, but we are not an alternative to them in the way that RGA has become recently."

A new player formed by former executives of ERC, Aurigen Canada, is not reinsuring critical illness risks presently, but it has not ruled it out either. "We want to remain focused on individual insurance risks at the moment. That does not prevent us from entering the CI market along the way, should we eventually reinsure other products," says Yana Gagne, Director of Business Development at Aurigen.