In this edition we would like to give an introduction of lapse reinsurance, which has been gaining traction in Europe.
Lapse reinsurance originally emerged as a capital optimisation solution following the implementation of Solvency II, with lapse risk and especially mass lapse risk perceived to be a theoretical risk. However, since 2021, the substantial increase in interest rate has driven down the market value of fixed income assets, which has resulted in the value of underlying portfolios falling below the statutory technical provisions or surrender value of the policies.
This has made insurers across Continental Europe much more aware of the lapse risk, and reinsurance is now purchased more for risk management purpose to limit the downside exposure of lapse experience deteriorating.
To learn more details about lapse risk and reinsurance solution, please download the full newsletter.
