What’s driving global demand for health reinsurance?

The global rise in healthcare utilization and the potential for increasing medical inflation could expand the role of health reinsurance, suggest insights from AM Best.

According to the report, global health reinsurance premiums have continued to rise, although the rate of increase has slowed over the past three years. This growth has been primarily driven by the commercial and stop-loss segments.

Doniella Pliss, director at AM Best, noted that health insurance remains one of the faster-growing segments in the global insurance industry, accounting for roughly half of the premiums generated.

However, the role and global volume of health reinsurance are still relatively modest when compared to other reinsurance sectors.

The report highlights that the demand for health reinsurance is typically lower than in other segments due to factors such as short-term obligations, pricing flexibility, and limited catastrophe exposure.

In the US, however, health reinsurance has seen increased utilization. This trend is attributed to reduced profitability, a rise in high-cost claims, and the need for primary carriers to optimize their capital structures.

Over the past decade, global reinsurers have reported significant growth in health premiums, though this expansion has decelerated in recent years. The report notes that health reinsurance premiums declined somewhat in 2021 and 2022 due to disruptions from COVID-19 in primary health product sales, particularly in emerging markets. Despite this, positive results from health reinsurance have helped offset losses related to COVID-19 mortality claims.

Health reinsurance across different regions

Emerging markets, especially in Asia, have continued to generate substantial growth in health reinsurance premiums. However, demand for basic health products has moderated due to market saturation, while more sophisticated products remain out of reach for the broader population.

In the US market, both quota share and excess of loss reinsurance arrangements have seen growth. For health statutory filers, the volume of ceded health premiums has increased more than fourfold over the past 10 years, with ceded premium as a share of gross premium rising from 1.8% to 3.7%.

In 2023, ceded premium for combined health and life/health statutory filers reached nearly $110 billion, up from $49 billion in 2014. The share of ceded premium has grown steadily, reaching 7% in 2022 and remaining at that level in 2023.

A significant portion of ceded premium in the US health market is reinsured with affiliates. Large health insurers with multiple subsidiaries have used these arrangements to optimize their internal capital structures and manage business flow.

Over the past decade, premium ceded to affiliates has fluctuated between 32% and 41%, reaching 64% in 2023. Many carriers have established new subsidiaries, including captives and reinsurers, or reactivated previously inactive subsidiaries to expand internal reinsurance capacity.

Large carriers, such as Elevance Health, Inc, have developed more sophisticated reinsurance arrangements. Elevance has utilized its long-established captive to assume Federal Employee Program (FEP) premiums written at multiple affiliates.

The captive’s segregated cell structure allows for the addition of other lines of business in the future. In 2022, Elevance ceded $1.9 billion in FEP premiums to the captive, increasing to $2.1 billion in 2023.

Globally, health reinsurance continues to support premium growth and provide expertise for local markets. In many emerging markets, where health insurance penetration is low and a large share of healthcare costs are paid out-of-pocket, health insurance premiums have grown at double-digit rates over the past decade.

Much of the demand for health reinsurance in emerging markets has been driven by the rapid expansion of fixed-benefit products, particularly in Asia. However, new trends are emerging as the market evolves.

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