The difficult economic environment continues to be of concern to insurers across all casualty and professional lines. The erosion of underlying fees/turnover/payroll affects premium levels for all lines. Increased incidence of fraud particularly affects professional lines and employers’ liability insurance.
The financial pressures on many insureds are expected to transpose into increased litigation and adversely impacted loss ratios. There is widespread concern over sovereign debt in the so called PIIGS (Portugal, Italy, Ireland, Greece, Spain) economies and the impact this may have on financial lines insurance.
To exacerbate this situation, of equal concern to insurers, are the low investment returns available. These levels can no longer supplement a moderate underwriting loss ratio. Bodily injury losses are affected by the possibility of a reduction in the discount rate and the potential for periodic payment orders (PPOs). While less of an issue under limited employers’ liability policies, PPOs remain of concern to insurers.
Primary employers’ liability rates are relatively static and must be considered in the context of the poor underwriting loss ratios for this class, rather than viewed in isolation. The loss ratios are augmented with the better performing third party element of the original risks as these classes continue to be written on a combined basis. Stand-alone employers’ liability policies are rarely written.
Capacity for all casualty and professional lines is abundant and this continues to suppress rates. On a positive note, however, is the disciplined approach the market has to non-mandated original policy wordings, which remain predominantly unaltered.
What should not be underestimated is the positive impact of actuarial analysis. Insurers are able to manage their portfolios to a degree that has not been possible in previous market cycles.
Reinsurance casualty claims are relatively benign and as a result reinsurance costing generally follows the original market. To some extent the same is true of professional lines, although those portfolios with an active loss history or perceived exposure to recession have received upward adjustments. Financial institutions exposures are attracting rate increases following the “cat” impact of Madoff, the subprime crisis and now, Storm Financial.
The implications of the tail on claim reserves (and the accompanying change under Solvency II) are becoming increasingly recognized. As a result, there is more interest in quota share treaty and adverse development reinsurance solutions, which reinsurers are very happy to provide.
Casualty capacity is abundant, especially for non-accumulating portfolios where we have seen increased appetite and new entrants.
Professional lines has seen some reduction in capacity, but with significant retentions on increasingly diversified accounts this has yet to be market-changing. There is a distinct lack of appetite for financial institution business and the market aggregate for peak risks in this sector has reduced significantly.