The U.S reinsurance market dominated by foreign companies

The global reinsurance market was worth 532 billion in 2021. As the world’s leading market in terms of direct premium income, the USA is de facto the world’s largest reinsurance premium cedants.

USAAccording to the Reinsurance Association of America (RAA), in 2020 the total sum of premiums ceded to offshore reinsurers amounted to 50 billion dollars, rising up by 6.3% compared the previous year.

Structure of the U.S non-life reinsurance market

The American statistics show two sets of figures. One set concerns local reinsurance companies and the other relates to reinsurance underwritten by offshore companies, those located abroad.

According to the Reinsurance Association of America, premiums reinsured in the American market by offshore companies are constantly increasing at the expense of those accepted by local players.

The U.S. share of direct premiums as a percentage of those accepted by U.S.-domiciled reinsurers has declined significantly over the past 20 years. It went from 55.7% in 1999 to 39.5% in 2020.

The graph below shows the evolution of premiums ceded in reinsurance by American insurers. It shows a total reversal of cessions, to the benefit of foreign reinsurers whose share in direct American business has risen from 44.3% in 1999 to 60.5% in 2020.

American insurers premiums ceded

Regulation of the U.S reinsurance market

American reinsurance is not as regulated as direct insurance. In the early 1980s, the regulatory authorities focused on the solvency problems of reinsurance companies and their ability to meet their obligations.

In consequence, in June 1982, the National Association of Insurance Commissioners (NAIC) created an advisory committee to better regulate reinsurance transactions. In the wake of this, a model law on credit reinsurance was adopted in 1984.

The regulatory system put in place resulted in the creation of an open but secure reinsurance market. A market where more than half of the reinsurance premiums ceded by direct insurers are placed outside the country.

This regulation introduced a separation of treatment between reinsurers. A foreign company can operate in the U.S. market by obtaining a license in the State or States where it wishes to underwrite.

Foreign reinsurers licensed by a U.S. jurisdiction (a State) are subject to the same regulations as their U.S. counterparts. Reinsurers that are not licensed in the United States, known as "alien" or offshore companies, are subject to additional requirements. They must have guarantees in the form of letters of credit or escrow funds in favor of the American cedants, to guarantee any reinsurance transaction.

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