Casualty insurers, not immune to declining exposure on which their rates are based, saw declines in premium income. The leading concerns for motor and employers liability insurers are rises in frequency and severity of bodily injury awards and a reduced ability to bolster results with prior year reserve releases or investment returns. In addition, the recessionary environment is resulting in more fraudulent claims. The pricing outlook for 2010 is more positive, but threats continue to loom on the horizon. Capacity remains abundant and the Internet promises to keep motor insurance competition sharp as price comparison websites become more prevalent. Motor reinsurance rates vary widely depending on country experience.
Private and commercial motor insurers experienced deteriorating results in 2009. Combined ratios were between 110 percent and 120 percent, as both frequency and severity of bodily injury awards rose. Although there were rate increases in 2009, the outlook for 2010 is for more significant double-digit rate increases. Pricing comparison websites may have had a mitigating effect on these rate increases.
Excess of loss reinsurers were concerned by the severity of bodily injury inflation and pressure on higher excess layers has been evident at January 1. New reinsurance entrants have had an impact, to some degree, on suppressing increased motor rates. Better performing accounts have experienced rate reductions in some cases.
Employers liability results were also weak and experienced a rise in frequency and severity of bodily injury awards and increased cost of care. Capacity is ample and rates remain relatively flat despite reduced payroll levels. Insurers for both of these lines of coverage are concerned about “no win no fee” arrangements, increases in fraudulent claims caused by the recession and reduced investment returns. Product liability capacity is also ample with flat rates being applied to reduced sales.
Although there were concerns in the excess of loss reinsurance market about severe bodily injury claim inflation, the ability of reinsurers to achieve rate increases and higher attachments was mitigated by new capacity. Insurers with better loss experience achieved rate reductions. Most rate changes on excess of loss layers ranged from down 10 percent to up 5 percent.