The U.S. life reinsurance segment has a stable outlook after a period of major changes, including a number of departures from the market, according to a new report from A.M. Best Co.

A.M. Best believes capital pressures facing many direct writers likely will renew their appetite for reinsurance.

Other sources of capital relief traditionally provided by the capital and credit markets have dried up, which likely will drive increased cession rates beginning in late 2008 and continuing into 2009.

Life reinsurers uniquely are positioned to increase prices while continuing to underwrite selectively, A.M. Best says.

The segment needs to remain vigilant in its own capital management to guard against the credit market contagion that direct writers face, including impairments of fallen credits or unrealized losses from widening credit spreads, the rating agency cautions.

Market share among the largest reinsurers has increased as Scottish Re, a former top five player, no longer is writing new business and new entrants have not materialized.

Persistent competition, increasingly complex regulation and product challenges require heightened enterprise risk management (ERM) capabilities and pricing discipline, the agency says.

Demand remains strong for traditional life business, but also for less traditional reinsurance, such as for variable annuity products that are susceptible to volatile equity markets.

A.M. Best expects direct writers to look to diversify their reinsurance programs, offering opportunities for smaller companies with strong ratings.

IE