Medical insurance reform remains the strongest driver is this space, with insurers still grappling with concerns around unlimited lifetime maximums and minimum loss ratios. Reinsurers have responded by offering unlimited lifetime excess of loss coverages that have proved popular with some insurers. Pricing for these very high layers, such as unlimited excess of USD10 million per person, is capacity and market-based, as the layers are so far out-of-the money that there is no credible experience. Further, in the short term, many insurers will maintain annual maximums where possible, which will limit observable experience at the highest amounts. Claims and rate-making for the very high reinsurance coverages will be interesting to watch over the next couple of years as the different elements in the healthcare delivery value chain adapt to the new incentives in health care reform.
On the demand side, several companies have bought for the first time in the last six months or are exploring a new purchase for the end of the year.
At least as interesting, is the activity on the supply side - reinsurers are hungry for business and have been aggressive, relative to recent experience. Overall, pricing for quota share and working layers held steady, indexing upward a bit below leveraged trend. Pricing for super-high claims seemed to have converged at attachments excess of USD10 million.
Personal Accident Catastrophe
The big story in the personal accident (PA) catastrophe market is the power of available capacity. Many PA cat writers also underwrite property business, and, due to the number of natural catastrophes in the past year, have been working to increase pricing. We would have expected this to carry over into the PA pricing as well, and at first it seemed like it might, but ample capacity from other markets was sufficient to forestall any significant market hardening.
Figure 1: Personal Accident
The hardest hit may be the Japanese insurers, which are reinsured by a combination of the large European companies, Lloyds and London company markets. Due to the timing of Japanese PA catastrophe renewals, most programs had been quoted by the time of the earthquake and reinsurers stood by their pricing. Ultimately, new capacity came into the market, lower limits were purchased and rate increases were in the range of 7.5 percent to 12 percent, giving back just a bit more than 2010’s decreases. The full impact will be better understood next year, as the major markets are expected to revise their earthquake and tsunami loss models.
For domestic US and international programs, the market hiccupped a bit, but settled back down very quickly. Incumbent markets generally pushed for rate increases between 5 percent and 10 percent, but new capacity offered decreases in the 5 percent range up to, an extreme example, 20 percent. Net results were flat to modest decreases, with notable outliers.