Insurers continued to post favorable results, with the medical malpractice class generating the highest return on equity for all commercial lines. The record industry profitability was fueled by historically low claims frequency, moderate claims severity and the release of loss reserve redundancies.
The primary marine market experienced flat and some reduced rates overall with a 5 percent to 10 percent reduction in many exposures. Generally loss experience in 2009 was favorable. Exposure reductions have been particularly evident in the cargo market as the economic downturn has prompted a significant reduction in the volume of goods shipped. The liability and P&I lines experienced flat to 10 percent increases while the offshore energy business was basically flat with some decreases of up to 10 percent for exposures outside the Gulf of Mexico. The outlook for 2010 is for further price softening as competition remains strong, some new capacity has entered the market and loss experience has been favorable.
Continental Europe
Primary motor insurers in the more commoditized classes of business have attracted the most competition. As a result, the market remains flat to soft. Of significant concern is the continued rise in adverse loss development on motor third party liability (TPL) bodily injury losses due to the effects of social inflation and the new compensation levels caused by European Union (EU) harmonization, higher annuities provisions, higher awards for pain and suffering and medical inflation far exceeding salary and wage inflation.
On the primary side, the personal accident market continued to attract new entrants globally. Despite material personal accident losses from the Colgan Air and Air France air crashes, direct rates continued to see downward pressure along with demands for larger limits. Reinsurance capacity in the personal accident segment continued to grow as a function of the new entrants in the Life/PA catastrophe space. New markets willing to write catastrophe risk were also willing to entertain per person risk.
At the start of 2009, capacity was extremely tight, as both insurer and reinsurer capital levels and costs were in question. Cost of capital, reduced investment income, lower lapse assumptions and a lack of reserve credit collateral put tremendous pressure on pricing. As the year progressed, capital and collateral issues began to resolve and the reinsurance market saw increased activity. By the end of the year, the same forces that stalled the market were creating ample opportunity for coinsurance deals, particularly in-force transactions.
Casualty insurers, not immune to declining exposure on which their rates are based, saw declines in premium income. The leading concerns for motor and employers liability insurers are rises in frequency and severity of bodily injury awards and a reduced ability to bolster results with prior year reserve releases or investment returns. In addition, the recessionary environment is resulting in more fraudulent claims. The pricing outlook for 2010 is more positive, but threats continue to loom on the horizon. Capacity remains abundant and the Internet promises to keep motor insurance competition sharp as price comparison websites become more prevalent. Motor reinsurance rates vary widely depending on country experience.
Risk Management Lessons from the Olympics: Guy Carpenter’s Chief Actuary Offers Some Observations: Winter sports are known for their inherent high levels of riskiness, so it should not be too surprising that some valuable lessons related to “personal risk management behavior” can be drawn from the way the athletes make decisions and how the competitions are conducted and judged. As risk professionals, when we watch the action on the snowy mountains and icy rinks, we can get another view on the choices made in the taking of risk or in mitigating risk. Here are just a few lessons that offer additional insights.
Severe Weather in Melbourne, Australia: A super cell thunderstorm battered Melbourne and its suburbs on March 6, causing severe damage to homes, businesses and vehicles from Flemington to Ferntree Gully. The storm system brought winds of up to 100 kmph (60 mph) to the region and dumped hailstones that measured around 100 mm (4 inches) in diameter, according to the Australian Bureau of Meteorology. Flash flooding was also reported as up to 45 mm (1.8 inches) of rain fell in around 30 minutes. Reports said Melbourne’s entire metropolitan area was hit by the severe weather, with officials saying the city’s eastern and southeastern areas were particularly badly affected.
Workers Compensation Jan 1 Renewal: With both the indemnity and medical severity components continuing to rise, the cost of workers compensation insurance remains a top concern for all employers, despite favorable trends in reduced claim frequency. The recession has further put pressure on wages that are being outpaced by indemnity inflation. Workers compensation medical inflation also continues to grow faster than the Medical Consumer Price Index. Despite these trends, primary workers compensation writers remained competitive by either keeping rates flat or granting reductions up to 5 percent on premium rates. Insurers attempted to write new business to offset lost premium caused by exposure decreases across their portfolios.
Update 2: Windstorm Xynthia: A powerful Atlantic storm named Xynthia battered western Europe with hurricane-force winds, surging seas and driving rain on February 27 and 28, causing widespread property damage and severely disrupting transport networks and infrastructure. The most severe damage was predominantly seen in western France, though disruption was reported across several countries in western Europe. Reports said at least 64 people were killed across France, Germany, Spain, Portugal and Belgium, and more than 1 million households lost power at the height of the storm. At least 53 of the fatalities occurred in France, which was the country worst-affected by the windstorm.
Construction & Engineering Renewals at 1/1: The 2008-2009 global financial crisis had a significant impact on insurers in the engineering and construction sector. Many large and small Contractors All Risk (CAR)/Erection All Risk (EAR) single projects around the world were either cancelled or suspended due to lack of available financing. These developments have caused insurers’ income from construction projects to shrink. Insurers see a need to expand into other classes, such as annuals, power and breakdown.
Most popular keyword: risk appetite tolerance
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Lloyd’s: A Resurgent Market, Part I: Overview, Underwriting and Operating Performance: Lloyd’s, poised to strongly capitalize on opportunities as 2009 began, saw its competitive position continue to strengthen during the year. The resilience of operating performance and capitalization to the very challenging economic environment of the past 18 months, coupled with a continued reduction in the number of legacy issues, has been rewarded. Market share gains, rating affirmations and continued strong investor interest prevailed.
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The Italian market was characterized by reinsurers who were not driven to quote aggressively, but then followed final terms. Average rate changes spanned a wide range from flat to up to 20 percent higher. Excess of loss (XOL) business without losses was generally flat, the exception being bond and credit coverage, which increased by 5 percent. Rate changes for XOL business with losses ranged from flat to increases of 15 percent for marine, 10 percent for cat and 5 percent for risk business and general third party liability. Motor third party liability business with losses experienced large average increases for exposures below USD2.5 million in a range of 15 percent to 20 percent. Exposures exceeding USD2.5 million showed rate increases of 5 percent. Continue reading…
The Scandinavian market was characterized by increased capacity provided by several reinsurers. Soft market conditions prevailed and rate changes were generally flat to declining. Loss-free cat excess of loss lines were flat to declining 5 percent. Property Risk business without losses was flat to down 5 percent. However, Property Risk business with losses, experienced rate changes that were flat to increasing 5 percent.
The renewals season was relatively stable in the CEE countries, with very little change in excess of loss pricing (XOL) on risks without losses. Average rates for XOL property cat risks with losses rose by 5 percent to 10 percent. Average rates for XOL Motor Liability and General Liability risks with losses were generally flat to 5 percent higher. Risk XOL business was under heavy pricing pressure due to the strong availability of capacity in the market and the generally benign loss experience of recent years. For catastrophe excess of loss lines there was pressure from the market to increase retentions as frequency has increased.
