Growing demand for health reinsurance driven by market fundamentals: AM Best

The demand for health reinsurance solutions is experiencing robust growth both in the United States and around the world, according to a recent report by AM Best.

This surge in demand is primarily driven by market dynamics that include challenges faced by primary carriers, the expansion of health insurance premiums in emerging economies, and the escalating demand for healthcare services.

In the United States, the profitability of the commercial segment in 2021 and 2022 faced a downturn, prompting several carriers to turn to health reinsurance as a means to alleviate capital pressure.

Primary carriers in the U.S. are grappling with an increase in high-cost claims, often associated with innovative treatments and new therapies. Furthermore, the capital-intensive government business, such as Medicare Advantage and Managed Medicaid, has added to the strain on capital resources.

In this context, reinsurance offers a viable solution by providing capital support and enabling primary carriers to concentrate on growth.

Although health insurance represents approximately 50% of the global premium, health reinsurance itself constitutes a relatively small share of this premium. This is due to the short-term nature of health insurance obligations, the flexibility to re-price policies, and limited exposure to catastrophic events.

Moreover, about 80% of global health insurance premium originates in the United States, where dominant primary carriers with robust balance sheets often opt to retain premiums without the need for excess of loss protection.

However, a shift is occurring as primary carriers in the U.S. increasingly turn to reinsurance not only for protection against high-cost claims but also to bolster financial flexibility.

Reinsurance enables health insurers to unlock capital, which can be utilised for operational needs, expansion of vertical integration capabilities, debt servicing, and shareholder returns.

While U.S. health insurers have traditionally held sway in the premium market, emerging economies are now leading in premium growth. This is attributed to the rapid expansion of the middle class, particularly in Asia, and their rising demand for improved healthcare access.

Additionally, the global aging population and the growing burden of chronic diseases have created a heightened need for medical services worldwide.

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