Reinsurance rates continued to favor cedents in the UK at the January 1, 2011 renewal. Catastrophe rates on line fell 5 percent to 10 percent year over year, continuing the January 1, 2010 declines of 7.5 percent to 10 percent from the previous year. Per risk programs were off 5 percent to 15 percent for working layers and high-risk excess programs, compared with a year ago.
Insurance rates varied by line of business. Commercial property was flat, while personal lines increased by 5 percent and motor by 20 percent. Loss ratios have been under pressure due to historically low rating levels. With capital markets recovering, merger and acquisition activity is again on the rise, returning to a long-term trend in the UK market. In the coming year, 2010 trends are set to continue.
In general, subject base incomes are falling because the UK insurance market is saturated, and original rates are falling, though casualty classes (including motor) are exceptions. In 2011, we expect Solvency II to have a noticeable impact on cedent purchasing habits, in particular for those with capital bases that rely on catastrophe reinsurance as a capital management tool.
There have been few structural changes to reinsurance cover with retentions and FGU amounts unchanged. Solvency II will be a key driver of this trend, but until now the FSA’s ICA capital regime has imparted discipline and uniformity into UK Cat purchasing decisions. Capacity increased from last year as new reinsurers entered the market, e.g., Lloyd’s syndicates and new players in Zurich.