February 23rd, 2010

Umbrella & Excess Rate Renewals at Jan 1, 2010

Posted at 11:00 AM ET

Premium income fell for insurers primarily because the weak economy left customers with smaller businesses and reduced value exposures to insure. Even when rates were flat or slightly higher, some insurers’ premium income on specific placements declined by 10 percent or more. Reduced premium bases were particularly evident in the Fortune 2000 lead Umbrella business. Segments that experienced pricing stability or rate increases include the small to middle market segment, excess towers where there is less rate reduction pressure and large insureds experiencing loss activity. This last group includes the energy, utilities, rail, transportation and life science industries. Given the recovery in the capital markets and new insurer entrants, absent significant changes in loss reserves or activity, the outlook is for a continued competitive situation.

Except for the small to middle market insurer segment where margins are considered attractive, reinsurers are concerned about underestimated loss projections causing a disconnect between insurers and reinsurers. The reinsurance market is harder with pressure on ceding commissions for quota share transactions and increased rates on excess of loss transactions. New insurers find it difficult to obtain the reinsurance capacity they desire as reinsurers restrict their capacity to prevent additional market softening. Most reinsurers support existing transactions, but tighter terms can drive increased retentions and more difficult negotiations for additional capacity. These conditions are expected to continue through 2010.

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