April 7th, 2010

April 1 Renewals: US Life and Accident & Health

Posted at 10:00 AM ET

David Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health Specialty

Life and Personal Accident Catastrophe
The 2010 accident year started with extreme seismic activity. The Haiti earthquake caused both tragic loss of life and massive property damage on a tremendous scale. Also tragic, but less severe, the Chilean earthquake stimulated tsunami concerns across the world. Thankfully, those didn’t materialize, but recalled the incredible loss of lives from the Indonesian tsunami of 2004.

Despite these tragedies, insured losses were low and reinsurers don’t seem to be reacting to a greater perception of earthquake risk. April renewals confirm the trends seen in January, with reinsurers competing strongly with low costs and increasing capacity.

Rates are down across the board (approximately 8 percent), and pricing continues to flatten at higher limits.

One notable point is that Japanese catastrophe treaties are starting to include some provision for pandemic infectious disease, limited to medical claims and fairly small death claims per person. The inclusion of this risk is significant, given concerns following the advent of Novel H1N1, though high attachment points and a 60-day “hours” clause limits the risk to reinsurers (and benefit to buyers) considerably. There is no explicit cost for the coverage, as pricing in the region is driven primarily by earthquake risk. The coverage was driven by large European reinsurers, but almost all companies have followed suit in this important market.

With recent legislative changes, the medical market is beginning to think about how best to compete and thrive in the new world. Though many details have yet to be determined, there are some key risks that have insurers and reinsurers concerned, primarily anti-selection due to no pre-existing condition exclusions and unlimited claims due to no lifetime benefit maximums. These issues will be key drivers of risk pricing and product innovation.

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