Insurance Markets

Munich Re of Canada's CEO on life business in North America

Geographically and culturally close as they are, the US and Canadian life insurance markets exhibit huge differences. Canadian life insurers are regulated centrally via Ottawa, while US companies must meet different regulations in each state. In Canada, key market players are concentrated in a few major cities – US primary life insurers are spread all over the country. Despite their diversity, Canadian and US markets share two characteristics: maturity and fierce competition. Mary Forrest is President and CEO, North America (Life), which is responsible for Munich Re's life business throughout North America. We began by asking her to describe the current overall market situation.


Geographically and culturally close as they are, the US and Canadian life insurance markets exhibit huge differences.
Mary Forrest is President and CEO, North America (Life)
The US is the largest life reinsurance market in the world. Over the past ten years, we've seen it become heavily concentrated – now more than 85% of new business and in-force transactions are placed with five reinsurers. To compete, reinsurers rely mainly on service differentiation and the strength of client relationships. I'd describe the market as rational, but still competitive. In Canada, the direct life insurance market is very mature and concentrated, with three large carriers writing over 75% of the business. Despite the fact that the reinsurance market also has three large competitors accounting for 80% of business – Munich Re, RGA and Swiss Re – it's quite competitive right now with new smaller players entering. I expect growth to remain challenging and competition intense in coming years.

European markets have seen a trend toward higher retentions. Is this also the case in North America?

In the US, retention has increased for most companies, but the cession rate decline over the past ten years has more to do with movement from quota share to excess/surplus, as reinsurance pricing has rationalised and alternative capital solutions – securitisations, letters of credit solutions, capital management transactions – have been introduced. Retention has increased in Canada too, but to a lesser extent. There are still a lot of good reasons for insurers to seek reinsurance coverage like capital and risk management advantages and opportunities to benefit from the very competitive reinsurance terms on mortality and morbidity risks.

Low interest rates pose a major challenge for the life insurance industry. How has Munich Re responded in your market?

The Market Consistent Embedded Value – MCEV – concept is not widely used by US companies. The low-interest-rate environment combined with our MCEV approach have meant that Munich Re has provided limited support to US companies in the current situation. In Canada, one of the challenges of low interest rates is the pressure on capital. We have been able to structure very innovative capital relief solutions for our clients to support them during this difficult time. Since 2008, Munich Re has allocated over CAN$ 2bn of new capital to the support of our clients in Canada.

What are the greatest differences between the Canadian and US markets?

The greatest differences are regulation, market size and client management. From a regulations standpoint, Canadian companies answer to the national government, while US companies are regulated at state level. That means a US company has to comply with varying regulations in 50 different states. Overall, however, Canadian capital requirements tend to be more onerous. This has led to higher cession rates and more opportunities for reinsurers, especially those that can mobilise large amounts of capital. The US population is nine times larger than Canada's, and the US individual life market is seven times the size of Canada's. On the reinsurance side, the US market is three times larger than Canada's, with roughly twice the number of reinsurers. This dynamic leads to competition for lower shares of US treaties, but with larger relative volumes. In the Canadian market, there are ten significant companies that offer virtually all products to the direct market. In the US, the number of insurance companies is dramatically higher and only a few companies operate in all geographic areas. Location is also a factor – while Canada is a larger country, the majority of Canadian clients are within two hours of our Toronto or Montreal office. In the US, our clients are spread all over the country, making client management that much more challenging.

What makes Munich Re stand out in the Canadian marketplace?

In Canada we have worked hard to prove our ability and capacity to serve life insurers in this strict regulatory environment. As a result, Munich Re currently holds more mortality risk than any other company – direct or reinsurance – in Canada. We are also very active in professional organisations and maintain an open dialogue with the regulatory bodies and primary insurers. We never carry out large deals without speaking with the regulator first, so companies trust us to conduct transactions that won't be overturned. Another factor is that our teams cooperate very closely with clients to see complex transactions right through to the end, often over a period of several months. And of course the financial crisis was a test – Munich Re was there with capital during times when our clients really needed it.

European insurers are preparing for Solvency II. Could you describe changes in Canada's regulatory requirements and how they have influenced life business?

A few come to mind. When Canada shifted from the net level premium reserve to a principle-based reserve in the early 1990s, it caused a massive change in how companies compiled their reserves, which also highlighted the value of reinsurance. Another significant change came when the Canadian regulator introduced the capital solvency regime ‘Minimum Continuing Capital Solvency Ratio’ over 20 years ago. This was another game-changer that meant companies had to manage their capital ratios more actively and consistently, and reinsurance became a key tool for doing so. The MCCSR will go through a major revamp in 2018 when it moves to a more a risk-centric approach comparable to Solvency II. I expect to see more similarities between these two methods in the future. We absolutely need to keep on top of these regulations in Canada and globally, to be able to best serve our clients' capital needs with robust solutions.

What are the biggest challenges facing life insurance in the years ahead? How can Munich Re support primary insurers in mastering them?

In both the US and Canada, upcoming regulatory changes will bring new capital requirement rules, which may lead to new demands on our clients in managing their capital ratios. We are helping our clients with capital management and customised reinsurance structures. In Canada specifically, our track record, expertise and access to capital position us very well to support our clients in meeting any capital needs. The baby boomer demographic presents additional significant challenges, like how to support retirees and ensure that their retirement savings stick around as long as they do. Of course, this means assisting companies in defining pension plans that control or limit their liability. We also have plans in place to explore longevity reinsurance solutions if the market demand picks up. Distribution is also a challenge, in the US and in Canada. Both countries are facing an aging distribution network. Insurance companies will soon have to look at innovative ways to streamline the underwriting and policy issuance process, as well as at leveraging social media and internet platforms. We have already started to work with a number of clients on automated underwriting solutions and rules engines to improve the underwriting process and reduce distribution pain points and costs.

Canada's Women's Executive Network has named you as one of the country's 100 Most Powerful Women. What does this honour mean to you?

This award is a great honour for me and also recognition for our company and our successes. I am most proud to be part of an amazing team of bright and talented people who have given their all to grow Munich Re Canada from a small operation to a highly successful company.

The Women's Executive Network is dedicated to networking and mentoring. What advice would you give to women who are just beginning their careers as executives?

Believe in yourself, be confident and never be intimidated by anyone. And don't be afraid to make your goals and expectations clear. From a personal perspective, I would also tell younger women who aspire to executive positions not to wait until their career is in the ‘right’ place before having a family. The two are not mutually exclusive – when a woman has the ability and clearly established goals in her own mind and the minds of her colleagues, she shouldn't let anything stop her from achieving both goals.