February 16th, 2010

Insurers Show Continued Interest in Casualty Clash Cover

Posted at 2:00 PM ET

Nick Olijslager, Managing Director, and Emil Metropoulos, Senior Vice President                                                                                                                                  Contact

Large insurers continue to seek Casualty Clash coverage. They are motivated by the results of the quantification of their tail risk exposure in Enterprise Risk Management initiatives, maintenance of consistent earnings and minimization of shock loss surprises to analysts. Clash protection also offers protection against higher working layer retentions. In addition, insurers are generally concerned about accumulations (stacking) of net loss exposures across a single or multiple lines of business and/or multiple insureds that may leave the insurer vulnerable to a non-industry loss event of unpredictable magnitude. Insurers are operating in a very competitive environment in many (but not all) of the underlying primary casualty covers covered by clash reinsurances. Consequently, the larger national/international insurers are experiencing larger deviations than smaller/medium sized regional companies as their exposures and subject premium have continued to fall. Almost all treaties renewed with expiring retentions and limits although there was some insurer pressure to increase terrorism sublimits.

As reflected in Exhibit I, casualty clash rates on line (ROL) on average saw a reduction of 2 percent in a range of +7 percent to -14 percent. As demonstrated in Exhibit II, nearly a third of the clash layers renewed with moderate increases, 29 percent renewed as expiring and nearly 39 percent renewed with ROL decreases.

 

Casualty Clash - 2010 Renewal ROL Changes - Exhibit I

cas-clash-rate-changebig

 

Casualty Clash - 2010 Renewal ROL Changes - Exhibit II

clash-2
The wide range of outcomes reflected the composition and specific market conditions of each underlying casualty line - balanced with changes in the overall Subject Premium Income (SPI). For example, placements exhibiting rate increases tended to be dominated by the professional lines, exhibiting softening primary rates, lower subject premiums and increased loss activity. Whereas placements exhibiting price decreases tended to be dominated by relatively flat subject premium bases, lower loss costs and more stable underlying primary rates, clash placements that renewed flat tended to demonstrate a good balance between stable primary rates, little changes in Subject Premium Income, corresponding loss costs and favorable historical reinsurer experience. Reinsurance Casualty Clash/Catastrophe capacity remains stable, with a dozen reinsurers continuing to be most active at January 1, 2010. Some new entrants were looking to diversify their existing casualty portfolios.

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