The life insurance industry is increasingly turning to reinsurance as a strategic tool to balance profitability goals, manage cost pressures, and adapt to market changes, according to insights from EY.
As companies evolve to meet these demands, reinsurance—whether internal or through third-party arrangements—has emerged as a critical component. The Society of Actuaries' latest Life Reinsurance Survey revealed that recurring reinsurance for US life insurers grew for the seventh consecutive year, with cession rates in the US market reaching 34%.
EY notes that the increased reliance on reinsurance is driven by several factors, including the need to support company growth strategies, optimize reserves and capital, and leverage external reinsurers' expertise in products and risk management.
To fully realize these benefits, insurers are rethinking their operating models across areas like technology, governance, and talent management.
One challenge is adapting traditional operating models to handle the increased use of reinsurance. EY highlights that insurers are seeking more agile, data-driven, and automated solutions to improve decision-making and streamline financial and administrative operations.
This includes addressing specific operational issues such as onboarding new treaties, managing data and systems impacts, and ensuring coordinated efforts across finance, actuarial, tax, and risk functions to meet financial close calendar timelines.
Talent acquisition is another key consideration, as reinsurance strategies require specialized skills. EY emphasizes that defining new roles and responsibilities is critical to ensure well-controlled reinsurance operations.
Additionally, insurers often face a lack of granularity in data, which hampers timely decision-making. EY points out that effective management insights require more detailed data to support business decisions.
As companies navigate these operational challenges, EY suggests adopting leading practices to optimize performance through reinsurance. One such practice is implementing a holistic reinsurance strategy that aligns with broader business objectives and risk appetite.
By assessing functions based on best-in-class vs. best-in-cost models, insurers can identify the most efficient ways to handle various reinsurance processes.
Sourcing talent and technology is also essential for successful reinsurance operations. EY advises insurers to leverage third-party expertise in areas like finance, investments, and actuarial analysis, freeing up internal resources to focus on strategic objectives.
Insurers can also benefit from digitizing reinsurance treaties and centralizing data, which can improve operational efficiency and facilitate real-time data insights.
Another emerging trend EY highlights is the integration of artificial intelligence (AI) into reinsurance processes. AI tools can extract, translate, and summarize data from unstructured documents like reinsurance treaties, improving data quality and enabling rapid reviews of treaty terms and actuarial models.
This use of AI can also enhance performance monitoring capabilities, allowing insurers to track historical and projected performance at the treaty level.
Looking ahead, EY recommends that insurers continuously assess their operating models to ensure they are equipped to handle the growing complexities of reinsurance. By embracing a more automated, data-driven approach and implementing leading practices, insurers can improve performance and create competitive advantages in an evolving market.
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