Reinsurance Renewal July 1, 2010: Capital Cushion Continues to Impact Pricing: Part V, Life, Accident & Health
The passage of health reform in the United States has put medical insurers in the challenging position of trying to understand how to manage unlimited lifetime claim maximums. In the short term, annual caps on payments are still allowed, easing the transition, but this change creates increased risk for insurers as volatility is increased and rate-making is necessarily based on assumptions rather than experience. We are seeing increased demand for high attachment medical excess reinsurance with high limits - many clients are looking for unlimited cover to match their required offering. This may create an excellent opportunity for reinsurers willing to step up to the challenge. Many are offering limits from USD10 million to USD20 million attaching at excess of USD5 million. A few reinsurers have come forward with unlimited coverage. Pricing is varying widely between carriers but should begin to converge for the very high attachments.
Overall, pricing for quota share and working layers held steady, indexing upward at near leveraged trend. We continued to see claims in programs attaching at USD1 million, making this more of a working layer than extreme event protection.
Personal Accident Catastrophe
This market dynamic includes factors which should suggest increased pricing — flight accidents have increased with lower layers having claims in 2008 and 2009, exposures in international programs have increased significantly due to exchange rate movements and seismic activity highlights the potential for loss in high-risk areas. However, despite these and other factors to the contrary, pricing continued to be driven downwards as the market is flush with capacity. Quoted terms were down 6 percent to 10 percent, generally, with new markets offering 15 percent reductions or more to get onto programs. Cedents were aggressively looking for better pricing and while some markets blinked and backed out of very competitive programs, those programs were, in some cases, still oversubscribed by as much as 50 percent or more. Reinsurers had plenty of capital and seemed to be chasing business, aggressively allocating lines once firm order terms were set. This may be exacerbated as reinsurers look to make up for reduced spend as some major buyers have restructured their programs and are retaining more risk.
We also saw a continued trend in clients customizing their programs in order to buy the most appropriate coverage for their risk profiles. This movement has included lower layers specifically targeting certain quake risks, single-country covers and high-attaching nuclear, biological, chemical, radiological-only programs. These programs benefit from the overall reduction in price trend as well as eliminating layers or coverages that were deemed to have little value.
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Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.