August 1st, 2012

European General Liability and Professional Lines at the July 1 2012 Reinsurance Renewal

Posted at 1:00 AM ET

Employers Liability/General Casualty - United Kingdom:

Reinsurance rate reductions were achieved on accounts with good performance. Those accounts with a notable PPO exposure and where reinsurance purchasing was at a higher attachment point were subjected to higher volatility loadings.

Primary rates have remained stable, with an underlying view that pressure must continue to be applied to achieve increases where possible. For risks that command a significant premium the competition was more intense, but overall rates were not subjected to the rate pressures that have existed over the previous 36 months. The third party account continued to complement the employers liability (EL) results of many insurers. With the general increase in bodily injury awards, lack of investment returns, pressure on discount rates, PPO effect and general recessionary factors, EL insurance must be subjected to upward rate movements to compensate.

Professional Lines - United Kingdom:

Professional indemnity insurance original pricing remained stable, with occasional rate increases where premiums were maintained on a reduced fee income or on those accounts impacted by adverse loss experience.

There is much anticipation around rate changes on the UK lawyers business renewing at the common renewal date of October 1, 2012.

The level of fraud coverage provided within the original policies and/or professions “minimum terms” wordings continued to be of concern to insurers and reinsurers alike.

The claims made nature of this class in the United Kingdom and in all European territories except Germany, Austria and Switzerland, continued to attract new entrants. This was particularly true where insurers were wary of long tail exposures but had a desire, indeed, often encouraged by regulators, to achieve diversification within their account.

Professional Indemnity Reinsurance: Reinsurance pricing remained relatively flat with capacity for this class stabilizing. The one exception remained the reinsurance of financial institutions, where new reinsurance capacity was not readily available, particularly for new entrants. Reinsurers remained very wary of the systemic and volatile loss potential inherent within this account and of the many “scandals” that continue to hit the press - for example, LIBOR fixing.

Directors and Officers Insurance: Private company directors and officers (D&O) remained fiercely competitive with the continued expansion in the number of insurance carriers and original policy coverage. Commercial D&O was also competitive but to a lesser degree, most notably where there was exposure to US securities.

Directors & Officers Reinsurance: Reinsurers were cautious in their approach to financial institution D&O reinsurance due to the potential impact of the sovereign debt crisis in Europe and the scandals that hit the top banking institutions.

For those accounts without financial institution exposure, reinsurance pricing remained flat with occasional rate reductions for those accounts without US securities exposure. Many reinsurers had a preference for pro rata reinsurance due to the inherent difficulties present in excess of loss pricing for this class of business, but this was often only available with loss ratio caps.

General Casualty - Continental Europe:

As a result of continued economic difficulties in many Eurozone countries, revenues were depressed and, consequently, premiums were low in primary general liability business.

There are still concerns around the higher levels of capital requirements under the forthcoming Solvency II regime. However, discussions related to Solvency II capital required for long-tail reserves and catastrophe volatility exposures were still ongoing and did not result in purchase of increased capacities. There has been increased emphasis on the value of reinsurance for catastrophe and reserve run-off exposures so the interest in loss portfolio transfers and adverse development covers increased. However, there was a reluctance to fully embrace those products due to the continued uncertainty of the final requirements of Solvency II.

Reinsurance excess of loss renewal rates were flat. Primary premiums increased slightly in some countries because of rising revenues, causing slight increases in reinsurance premium. There were no major losses in the market except for the classes described below. In some treaty programs with good claims experience reinsurers softened the usual exposure rating approach, leading to discounts being given. Capacity was generally abundant in the market, especially for smaller regional accounts.

The directors and officers and medical malpractice segments saw an increase in losses. Past losses from the pharmaceutical industry led to premium increases as well as restructuring of coverage for the accounts affected. Nevertheless, in general the rates for the European market remained stable due to the mitigating effect of available capacity.

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