Original rates continued to increase, particularly in the private car sector, where rates are moving upward at an average rate of 1 percent to 2 percent per month. Movements in commercial rates are less pronounced, but year on year rate movements are increasing in the range of 5 percent to 10 percent.
Movements in the original rates, combined with substantial excess capacity in the reinsurance market, mean that reinsurance rates were generally flat. Accounts with good loss experience saw reductions of up to 5 percent.
Periodical payment order (PPO) awards remain a real issue for reinsurers. There are signs that the frequency of such awards is continuing to increase, but the impact on reinsurance pricing is still limited. Similarly, the discount rate issue, very much in evidence at the January 1 renewals, appears to have dissipated in light of the recent announcement by the Lord Chancellor. He intends to review not only the level of the discount rate, but the method of calculation.
The number of reinsurers offering quota share capacity is increasing, and the continued upward movement in original rates may produce further opportunities, as some of the smaller market players become increasingly capital constrained.
Across Continental Europe, there are very few reinsurance treaties renewing at dates other than January 1, but the conditions for those renewals have been stable despite recent loss turmoil in other market segments.
Motor liability reinsurance rates remained at a commoditized low price at the catastrophe level. Unlimited cover continues to be available with a surfeit of reinsurance capacity, despite the withdrawal of almost all unlimited retrocession capacity following Partner Re’s takeover of Paris Re. Reinsurance rate changes on working layers varied widely in accordance with experience. Social inflation, in particular, medical care costs, had an impact. For example, in Italy and Germany, rates have increased by 5 percent to 15 percent. There is special concern about the impact of under-estimated annuity reserves in certain Eastern European countries.
Quota share treaties continue to play an important role in Germany. A rise in the number and size of quota share cessions in the run-up to Solvency II may be expected. This should coincide with a general improvement in loss ratios as the motor market begins to firm up in response to a period of increasingly difficult results amidst strong market competition in the period 2007 to 2010. Underlying rates in a number of countries have bottomed out, and now that reserve redundancies have been drawn down and the cushioning effect is exhausted, pressure will be felt on rates.
General Liability & Professional Lines
UK & Continental Europe:
Economic difficulties persist in many European Union countries, resulting in depressed turnover and, consequently, lower underlying premiums in general liability business.
There is a concern about the high level of capital needed in the future. It will be needed for allocation to long-tail reserves and catastrophe volatility exposures, as companies prepare for Solvency II. This puts new emphasis on the value of reinsurance for catastrophe and reserve run-off exposures, with revived interest in loss portfolio transfers and adverse development covers. Monoline mutuals are particularly vulnerable due to the high portions of reserves held against relatively small capital bases.
Reinsurance excess of loss renewal rates were generally stable. Although, when they are applied to premium incomes that have declined due to the recession, there is some reinsurance premium shrinkage. Losses, with the exception of the classes specified below, have, however, been benign. Exposure rating discipline is evident in what has become a very technically-oriented market, but good experience can generate significant discounts. There is an abundance of capacity, especially for smaller regional accounts.
In the pharmaceutical, energy, directors and officers and medical malpractice segments, there was an increase in losses, which led to individual loss-affected accounts undergoing both restructuring of coverage and premium increases. Nevertheless, for UK and European insureds, there remains an abundance of capacity, which has partially mitigated premium increases and contributed to a stable market.