Insurers continued to post favorable results, with the medical malpractice class generating the highest return on equity for all commercial lines. The record industry profitability was fueled by historically low claims frequency, moderate claims severity and the release of loss reserve redundancies.
Primary rates declined by approximately 5 percent, with original insureds often receiving larger premium discounts after the application of rating credits and policyholder dividends.
Reinsurance market capacity for the medical professional liability class was ample, yet the market remained remarkably disciplined. The overwhelming majority of reinsurance programs renewed at the expiring reinsurance rate at January 1, 2010, with most insurers paying less for reinsurance by virtue of their declining premium base. A small minority of reinsurance programs experienced either a rate decrease or increase at renewal.
There were two purchasing trends evident among medical professional liability insurers at January 1, 2010. Several insurers elected to purchase casualty catastrophe reinsurance coverage providing protection against clash, extra-contractual obligation/excess policy limits and systemic risks. The other trend was a move toward increased net retentions or co-participations in light of record profitability and insurers’ financial ability to bear more risk.
During the course of 2010, reinsurers were expected to be extremely selective in their renewal offerings, citing concerns over primary rate adequacy caused by year over year premium reductions, increasing claims frequency in some states and pending challenges to tort reform packages enacted in several jurisdictions. As the primary market continues to soften, some reinsurers are expected to seek rate and coverage improvements at January 1, 2011.