February 7th, 2012

January 2012 Reinsurance Renewal: European Motor

Posted at 3:46 PM ET

UK Motor

Rate increases were higher than in recent years at the January 1, 2012, reinsurance renewal for UK motor, due in part to primary market dynamics.

The UK primary market saw price increases of 10 percent to 30 percent, largely because of poor underwriting results, bodily injury inflation and increased claims frequency at lower severity levels. The increasing prevalence of periodic payment orders (PPOs) and the impending Lord Chancellor’s office review of the Ogden Discount rate, which the courts use to convert the future cost of care and loss of earnings into a lump sum, represents noteworthy developments with implications for the future.

The primary market is likely to slow down in 2012 after 18 months of significant rate increases, although insurers may seek to pass to original insureds any reinsurance rate increases they sustain.

For the reinsurance market, PPOs are a concern for virtually all reinsurers, although their reactions have varied greatly. While some have withdrawn completely from the market, others have moved to higher layers on programs. Others, in contrast, have decided to move to lower attachment points. Quoted rates were up 10 percent to 30 percent at the January 1, 2012, reinsurance renewal, with firm order terms up 15 percent to 25 percent. Increases have been higher for those buying at higher deductibles, where some reinsurers perceive the potential impact of PPOs to be greater.

Reinsurance rate increases for commercial motor have been more varied, with the overall level of increase depending on the original rate increases applied, composition of the portfolio and the overall performance of the account.

For the first time in a number of years, there were signs that motor excess of loss capacity may become an issue for insurers. The PPO issue is still unresolved and is likely to be a major factor at next renewal.

Demand for proportional capacity remains substantial, especially for offshore cedents writing business in the United Kingdom, and has increased as some reinsurers move away from motor excess of loss and focus on quota share. Because of the abundance of proportional capacity, reinsurers are prepared to write quota share or coinsurance at margins of 2 percent to 4 percent, with profit commissions of 100 percent payable on profits in excess of the agreed margin.

Continental European Motor

Unlimited top layer excess of loss reinsurance coverage has renewed for the most part at unchanged rates, which reflect a degree of commoditization of reinsurance costs for catastrophe exposures in the country of the cedent’s domicile plus an allocation for Green Card exposure.

Working-level excess of loss rates have varied in accordance with experience, from flat to up 10 percent. A number of cedents have considered higher per-loss retentions but are reluctant to make this move at the present time due to Solvency II-driven capital allocation requirements for potential future frequency changes within mid-sized loss bands.

Click here to register to receive e-mail updates >>

AddThis Feed Button
Bookmark and Share

Related Posts