AM Best forecasts suggest that the global rise in healthcare utilization and the potential for increased medical inflation could lead to an expanded role for health reinsurance.

According to the report, global health reinsurance premiums continued to rise, although the rate of increase has slowed over the past three years. This growth was primarily driven by the commercial and non-commercial insurance sectors.

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Doniella Bliss, Director at AM Best, noted that health insurance remains one of the fastest growing sectors of the global insurance industry, accounting for nearly half of all insurance premiums generated.

However, the global role and size of health reinsurance remains relatively modest when compared to other reinsurance sectors.

The report confirmed that demand for health reinsurance is usually lower than demand in other sectors due to factors such as short-term liabilities, pricing flexibility, and limited exposure to catastrophes.

But in the United States, health reinsurance has seen an increase in use. This trend is attributed to declining profitability, high-cost claims, and the need for primary insurers to improve their capital structures.

Over the past decade, global reinsurers have reported strong growth in health insurance premiums, although this expansion has slowed in recent years. The report notes that health reinsurance premiums declined somewhat in 2021 and 2022 due to COVID-19 disruptions to primary healthcare product sales, particularly in emerging markets. However, positive health reinsurance results helped offset losses related to COVID-19-related death claims.

Health reinsurance in different regions

Emerging markets, particularly in Asia, have continued to generate significant growth in health reinsurance premiums. However, demand for basic health products has slowed due to market saturation, while more sophisticated products remain out of reach of the general population.

In the US market, quota share and excess of loss reinsurance arrangements have seen significant growth. For health insurance claimants, the volume of health insurance premiums ceded has more than quadrupled over the past 10 years, with ceded premiums as a percentage of total premiums rising from 1.8% to 3.7%.

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In 2023, ceded premiums for legal health and life/health insurance policy providers will reach nearly $110 billion, up from $49 billion in 2014. The share of ceded premiums has been growing steadily, reaching 7% in 2022 and remaining at that level in 2023.

A significant portion of ceded premiums in the U.S. health care market are reinsured with affiliates. Large health insurers with multiple affiliates have used these arrangements to improve their internal capital structures and manage business flows.

Over the past decade, premiums allocated to affiliates have ranged between 32% and 41%, reaching 64% in 2023. Many insurers have established new affiliates, including captive insurance companies and reinsurance companies, or reactivated previously inactive affiliates to expand internal reinsurance capacity.

Large insurers, such as Elevance Health, Inc., have developed more sophisticated reinsurance arrangements. Elevance has used its long-established captive insurance system to assume the Federal Employees’ Benefits Program (FEP) premiums written by several affiliates.

The separate cell structure allows the captive company to add additional business lines in the future. In 2022, Elevance ceded $1.9 billion in FEP premiums to the captive company, increasing to $2.1 billion in 2023.

Globally, health reinsurance continues to support premium growth and provide expertise to local markets. In many emerging markets, where health insurance penetration is low and a large share of healthcare costs are paid out of pocket, health insurance premiums have grown at double-digit rates over the past decade.

Demand for health reinsurance in emerging markets has been driven by the rapid expansion of fixed benefit products, particularly in Asia. However, new trends have emerged as the market evolves.

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