David Rains, Managing Director
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Medical

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.

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Reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012. Capital has continued to strengthen through the second quarter of 2012, moderating pricing pressures, according to a briefing released today by Guy Carpenter & Company.

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Personal Accident

The trend of hardening rates continued in 2012 although at a slightly lower pace. Risk adjusted rate increases were between 3 percent and 11 percent. Companies whose lead terms were agreed prior to the Tohoku earthquake last year had to accept a steeper increase.

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Reinsurance rates were flat at the January 1, 2012, renewal for the international accident reinsurance market. This is expected to continue through 2012, coupled with continued steady performance and the possibility of increased M&A activity. Subject base exposure increased 5 percent year over year, driven by underlying sales growth and price inflation on a macro level. As pricing becomes more favorable - especially at higher levels, for example, ROLs of 1 percent to 1.5 percent - the trend is to buy more. Vertical retentions are gaining popularity as a way to maximize the use of capacity at minimum ROL.

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Slower growth in primary medical insurance rates had implications through the reinsurance sector at the January 1, 2012, renewal. Loss-free life and accident catastrophe programs sustained risk-adjusted price decreases of 5 percent to 8 percent on average, and rates for medical per member excess of loss working layer programs were down around 5 percent.

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David Rains, FSA, MAAA, Managing Director and Head of Life, Accident & Health Specialty
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Medical

The passage of health reform in the United States has put medical insurers in the challenging position of trying to understand how to manage unlimited lifetime claim maximums. In the short term, annual caps on payments are still allowed, easing the transition, but this change creates increased risk for insurers as volatility is increased and rate-making is necessarily based on assumptions rather than experience. We are seeing increased demand for high attachment medical excess reinsurance with high limits - many clients are looking for unlimited cover to match their required offering. This may create an excellent opportunity for reinsurers willing to step up to the challenge. Many are offering limits from USD10 million to USD20 million attaching at excess of USD5 million. A few reinsurers have come forward with unlimited coverage. Pricing is varying widely between carriers but should begin to converge for the very high attachments.

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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.

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