Workers compensation treaty renewal activity in the first quarter of 2010 was light, following the rush of January 1 renewals. Overall, the softening of treaty rates and terms appeared to be slowing with overall program renewal rates coming in flat to slightly down. Single claimant exposed (working) layers saw reinsurers focusing on holding rates flat against falling subject premium bases. Catastrophe layer pricing showed continued softening of rates.
Primary workers compensation markets continued to be under pressure and faced increased competition for premium dollars as employer payrolls continued to be down. Primary markets continued to struggle to make premium targets and reinsurers faced requests for waivers of 2009 contractual minimum premium from many fronts.
In addition to payroll reductions, primary rates continued to decline, with the notable exception of California programs. With lower premium volumes, primary markets felt increased pressure on expenses. Furthermore, recent changes in the catastrophe models have led to decreased results for many clients - especially those writing in California. Due to the pressures on expenses, clients chose to enjoy the savings associated with decreased limits rather than buy down to lower attachment points. Many clients chose to increase their retentions even while reinsurance rates were at low levels.
While workers compensation catastrophe capacity remained strong working layer capacity saw a slight contraction. Capacity was still available to complete working layer programs, but, several reinsurers reacted to rate softness in the working layer by restricting or reducing line size.
Claim frequency is expected to continue its downward trend while, severity continues to rise. One notable result of these continued claim trends was an increased interest by ceding companies in larger single claimant exposed limits (excess of USD10 million) during the first quarter.
Recent catastrophic events are not anticipated to have a substantial impact on workers compensation treaty reinsurance pricing.