Lapse reinsurance can help insurers manage the risk of capital losses from an increasing number of lapses in life insurance.

The Gray Rhinos Series is designed to raise awareness of a select group of insurance industry challenges before a major event occurs. We're increasingly hearing from cedants — as well as reinsurers — about the inherently elevated risk landscape we're operating in. In an increasingly volatile world, the ability to quickly identify and prepare for high-impact eventualities is a business imperative for us and our carrier partners.

The term “Gray Rhino” was first coined by Michele Wucker, an American policy analyst specializing in the world economy and crisis anticipation. In her 2019 TED talk, “Why we ignore obvious problems — and how to act on them”, she urged viewers to replace the idea of the "black swan" (a rare, unforeseeable, unavoidable catastrophe) with the reality of the "gray rhino" — a preventable danger that we choose to ignore.

Gray Rhinos are threats that we can see and acknowledge, yet do little about. Created originally for discussion around large policy issues, the term has become increasingly adopted by the business world — particularly when considering business process, systemic decision-making or industry trends.

The Grey Rhinos Series: Life Lapse

Our first Gray Rhinos article addresses the mass lapse risk in European life insurance. As politicians and business leaders grapple with inflation, low growth and the threat of recession, the life insurance sector has a particular concern: the risk that their customers might abandon them. Capital losses from rising policyholder lapses could be catastrophic for the industry and create acute financial problems for carriers.

A growing number of insurers have been seeking reinsurance to manage this lapse risk and protect their bottom line. Lapse reinsurance transactions have increasingly been executed in Europe, with an increasing number of first precedents of these transactions receiving local regulators’ blessings. There are several risk management benefits to these solutions; view the report to learn more about them.