At the July 1 renewals the US casualty lines continued to demonstrate a soft pricing environment with few changes seen from the prior renewals in the year. The direct market showed a general improvement in profitability as underwriting results and net investment gains increased. This occurred as premiums declined, further impacting a soft reinsurance pricing environment. A recent development is a slowing in the decline of the subject premium base for many casualty lines. It appears to be stabilizing (even increasing in some lines) as a result of the recovering economy.
Little has changed in the workers compensation reinsurance marketplace since January 1. Capacity and competition remain abundant for both single claimant and catastrophe layers and thus rates for both remain soft.
There were no material changes from prior renewals for reinsurers in the umbrella and excess lines. The direct umbrella market was unchanged as well. Rates were flat to down where competition was introduced with the exception being a decreasing exposure base seeing a slight rate increase so that the premium does not follow it down dollar for dollar. The situation is similar in the automobile and general liability lines except that rates were flat to down regardless of the competitiveness of the situation. There are growing expectations that the Deepwater Horizon loss will have an effect on reinsurance pricing and capacity. Some direct umbrella insurers are evaluating the impact of their limited pollution wording related to the Deepwater loss. They may add exclusions on renewals where they received notice of loss under the previous policy.
There has been no change in pricing or capacity levels in surety since the year’s prior renewals. Primary rates remained stable, while reinsurance pricing increased up to 7 percent compared to subject premium levels. Reinsurance pricing was driven by loss activity and expanded coverage.
Little has changed in the workers compensation reinsurance marketplace since the January 1, 2010 renewal. Capacity and competition remained abundant for catastrophe layers and adequate for single claimant layers. Rates for both remained at the same levels seen at the January 1 and April 1 renewals. Purchasers were able to secure rate on line (ROL) reductions for multi-claimant catastrophe layers up to 10 percent. Single claimant layers continued the trend of stabilization, with rate reductions only given to clients with excellent loss experience. A majority of single claimant layers were renewed at expiring rates.
With unemployment still at historically high levels, no signs of an economic recovery have shown up in the subject premium projections for our workers compensation clients. Many clients are projecting their 2010 subject bases will end up flat or down by 5 percent to 10 percent this year, with a few outliers seeing declines in subject base in the 20 percent to 30 percent range.
No major shifts in terms and conditions were noted, although the soft market atmosphere allowed for the elimination/softening of restrictions such as exclusions, employers liability policy limits and maximum any one life warranties. Clients were still increasingly investigating higher single claimant exposed limits (in excess of USD10 million), and for a few clients, there was an increased interest in the use of pure per person covers for higher layers.
Reinsurer merger and acquisition activity has had an effect on capacity in the last couple of years. “One plus one rarely equals two” when it comes to pricing support and capacity. We have also seen certain reinsurers restructure/retreat from larger stretch single claimant layers (USD9 million xs USD1 million). Both the merger activity and restructuring, which resulted in capacity reduction, are contributing to upward pressure on reinsurance rates.
Reinsurers continued to support renewals even though pricing approached walk-away levels and oversubscriptions have been declining over the last 12 months. The previous absolute pricing floor for top layer multi-claimant layers of 2 percent gave way for ROLs approaching 1.5 percent. The single claimant layers were challenged by eroding primary market experience, increasing severity trends and threats of inflation increasing current reserves.
Recent National Council on Compensation Insurance (NCCI) reports showed that primary insurers’ average combined ratio increased 9 points in the last 12 months to 110 percent for 2009. This elevated combined ratio and economic recovery timing uncertainty are going to make primary workers compensation market profitability a major challenge.
Rates and capacity levels in the international casualty reinsurance marketplace remained relatively stable during the first half of 2010, leading into the July 1 renewal.
The classes most sought continued to be non-accumulative general liability and motor lines. Rate reductions in these classes remained possible, depending on individual account experience. This occurred in an environment of primary insurance rate increases on motor business and the benign loss experience on general liability accounts at levels that principally affected reinsurers.
Reinsurance capacity for most classes of long tail business remained plentiful. To a large extent this was a reflection of the general over-capitalization of the reinsurance market and was further fueled by a number of new entrants in the last 12 to 18 months.
Reinsurance competition was most prevalent on protections for pure UK portfolios. We also saw reinsurance competition for accounts that introduced territorial diversification.
Accumulative and systemic exposures inherent within professional liability lines proved the most challenging. Reinsurance rates were robust and capacity limited. Reinsurance support was only dispensed at sensible pricing for the most respected insurers. In-depth knowledge and understanding of the individual accounts to be reinsured was imperative if “commodity” pricing was to be averted. Retentions remained high and limits protected did not generally increase.
Financial institutions continued to be treated with caution with the economic climate, in particular sovereign debt, catching reinsurers’ attention. The Deepwater Horizon loss increased attention to side “A” directors and officers coverage and the potential costs that may be incurred from shareholder derivative actions.
The value of reinsurance for bodily injury exposures remains under scrutiny. Increased cost of claims at excess levels continues and insurers are also experiencing increased claims settlements on a structured basis, such as periodical payments in the UK. For these claims, coverage under reinsurance treaties is minimal with attachment level relatively high, indexed and ever increasing. In addition, periodic payments have introduced further uncertainty for both insurers and reinsurers alike. Political influences may also bear on the current economic environment, where cost of care is likely to increase from an insurance perspective. Current reinsurance arrangements do not bring certainty to insurers or reinsurers and compromise settlements continue to be the focus of attention.
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