January 14th, 2009

International PA Renewal at 1/1

Posted at 1:00 AM ET

Shaun Scade, Managing Director
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The non-U.S. personal accident (PA) market was not isolated from the effects of the global financial catastrophe. The January 1, 2009 renewal was framed by discussions concerning the cost of capital, liquidity, and investment returns. Reinsurers generally initiated these conversations with the hopes of using asset impairment issues to secure better pricing. Nonetheless, cedents were able to resist rate increases-for some lines, rates even dropped slightly.

Pricing

Pricing for international PA catastrophe excess of loss (XOL) cover was pushed lower. For smaller programs (up to USD20 million), reductions of up to 10 percent were possible. Larger programs generally experienced flat or marginally reduced pricing. These larger programs remain sensitive to real or perceived changes in non-air-travel accumulation risk.

Capacity was available for rates on line (ROLs) of less than 1 percent, including cover for nuclear, biological, and chemical (NBC) perils at the top ends of programs protecting single-territory risks-as long as there was no perceived natural catastrophe exposure. This was observed in some European countries, South Africa, and Australia. Risks with earthquake exposure follow a similar pattern to that described for NBC above. Peak zone exposure is tight and pricing therefore was firm.

Minimum price issues applied to national cedents in the United States. They were unable to find cover that included NBC at ROLs of below 3 percent. For larger accounts with significant exposure (i.e., an expected loss of 10,000 lives or more) to earthquake or terror, top-end pricing was even higher.

Prices for PA facultative reinsurance had small decreases overall at the most recent renewal and are expected to be flat in 2009. The PA retrocessional market was quite limited.

Capacity

It has been seven years since losses arising from the terror attacks of September 11, 2001, caused a massive rationalization of the PA market. Capacity has returned to the marketplace to the point that it is more than sufficient for all but the most difficult placements. Thus, it is not surprising that there were no significant entrants to the market last year. Overall capacity increased modestly.

The management of Lloyd’s continues to endorse the writing of PA business, leading this market to expand a little, particularly for direct and facultative business, as well as treaty business outside peak zones. The larger syndicates tightened their grips on the price and conditions setting process.

Other Issues

Capacity for NBC perils has tightened for risks situated in the United States and UK, which has resulted in some pricing pressure. In Continental Europe, capacity is easier to secure, although the additional premium for the inclusion of NBC can be as high as 100 percent. London market buyers are not seeing such dramatic price loads, though they are typically paying double-digit ROLs for lower layers.

Overall, U.S. nationwide capacity (especially for covers including NBC and earthquake) is still tight, and much of this exposure is retained net. The Industry Loss Warranty (ILW) market has grown in recent years and this mechanism is being accessed increasingly by (re)insurers looking for an economically realistic way to hedge the NBC terror or earthquake risk contained within their PA or workers compensation portfolios.

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