While most renewal activity in this segment occurs at January 1, subsequent placements confirm that a highly competitive market exists for medical reinsurance. Capacity was rational but ample, with incumbents often renewing aggressively to avoid losing the business. Beyond competitive pricing, reinsurers looked to add greater value through their claims expertise or specialty network access.
For programs with expected, or better than expected losses, renewals were typically flat rather than the historically common leveraged trend increase. This was very welcome in an environment where many state insurance regulators are aggressively managing insurers’ requests for rate increases.
For programs with worse than expected results, the market responded with increases, some very significant. That said, brokers were able to take advantage of stiff competition to keep increases reasonable.
Regarding healthcare reform, most insurers and reinsurers appear to be moving forward in a “business-as-usual” fashion, but that is against the backdrop of tremendous uncertainty over the basic US operating environment. We have, however, seen some different buying decisions by stop loss carriers driven by the elimination of lifetime maximums. Companies are concerned about claims excess of USD10 million where there is little if any claim data and have bought new reinsurance to protect against runaway claims. In some cases, clients have even ceded risk at a lower attachment to generate enough total reinsurance premium to get support from the market.
The Supreme Court’s recent decision affirming the constitutionality of health care reform will provide some clarity, though November elections could still influence the eventual medical insurance/reinsurance environment. The largest carriers have said they will retain many of the already implemented requirements of reform, nevertheless.
Life and Disability
Disability claims have historically been correlated with the economy. Curiously, claims incidence rates had been holding steady throughout the global financial crisis. Recently however, as a result of the persistence of the recessionary environment, claims incidence is up and termination rates are down across the industry. It should be noted there is significant volatility relative to the experience for individual companies. Some per-person excess of loss reinsurance program experience was up significantly, with corresponding reinsurance rate increases, while others remained close to expectations.
Beyond the worsening experience, low investment income posed significant pricing challenges for both primary and reinsurance disability companies.
Group life remained very competitive both from the direct and reinsurance perspectives, with some reinsurance renewals coming in below projections. These strong renewals helped insurers keep their per-person retentions low, but they could increase quickly if rates become less competitive. On the direct side, there was more pressure for higher guaranteed issue amounts and, for reinsurers, demand for higher automatic reinsurance binding amounts.
The key factor in pricing for this market was capacity - excess capacity continued to push rates down, outstripping almost any rate increase pressures. There remains ample capacity and this trend is expected to continue for most programs. However, catastrophe reinsurance buyers and prospective buyers were considering new programs and/or increased limits, which tested how far markets would extend themselves.
In the largest programs, rate decreases of 5 percent to 10 percent were still available, but incumbent markets restricted capacity, particularly on the highest, most aggressively priced layers. Programs with significant exposures to US/UK terror were most at risk in being affected by a potential constriction of capacity.