Rate increases and an apparent decrease in the use of carrier discounting were encouraging signs for an improving market. However, other headwinds remained - depressed investment rates, reserve development, medical trend (including pharmacy) and slow job growth were still major challenges to the industry. The workers compensation line is still struggling with profitability.
Reinsurance renewals in the first two quarters of 2012 indicated slight rate increases for working layer coverages and rate decreases for multi-claimant catastrophe layers. Another common measure for multi-claimant layer pricing is rate on line. Rates on line for multi-claimant catastrophe layers showed a slight increase. The bottom line for multi-claimant catastrophe layers is that reinsurance dollars remained close to expiring but produced rate reductions for clients due to the increased subject bases.
There are no major changes in workers compensation reinsurance pricing forecasted for multi-claimant catastrophe layers. A market changing event will either come from very large domestic workers compensation event losses or worldwide catastrophe losses exceeding 2011 levels that produce higher rates for other lines of business. Reinsurers will divert capacity from the low rates on line for workers compensation to other opportunities. Such a reduction in capacity may produce a hardening of workers compensation catastrophe rates. In the first half of 2012 there were some changes in reinsurers’ attitudes about supporting the rates on line lower than 2 percent for upper layers. The levels of oversubscription for firm orders in the more recent years have continued to reduce.
At current prices, reinsurance market capacity remained ample for a majority of the multi-claimant catastrophe programs.
Working layer reinsurance rates remained dependent on individual ceding company experience. Ceding companies that demonstrated best in class risk selection, ongoing portfolio optimization and superior claims management (with an emphasis on reserving and closure rates) were rewarded with the most competitive reinsurance rates, terms and conditions. Reinsurance market capacity for the working layers was more limited than it was for the multi-claimant catastrophe layers. There has been some recent repositioning of individual working layer reinsurers’ pricing and appetites. Further refinements from working layer reinsurers over the next six months should not be unexpected.
There is an expectation that there will be additional requests for single claimant limits greater than USD10 million and continued interest in structured placements to help stabilize calendar results.
Many of the year-end 2011 indications of a changing workers compensation insurance market continued to develop through the first and second quarters of 2012. The trend of increasing primary rates having the largest effect. According to a recent State Advisory forum from the National Council of Compensation Insurance, within the current rating periods there are 27 states with indicated rate increases compared to 10 states with indicated rate decreases. The increased rates and stabilized job losses are showing up in the ceding company subject premiums. Ninety percent or more of the Guy Carpenter clients renewing reinsurance programs in the second quarter forecasted increased subject bases. The average increase was just over 12 percent.