Growth for primary writers is extremely challenging in the current economic environment. Organic growth due to higher incomes has slowed and, in some cases, is actually negative as higher paid workforces have been declining in number. Also, economic conditions aren’t ideal for generating new insured policies. Against this need for growth, experience for most plans has been unexpectedly good. These two factors have led issuers to consider or implement higher retentions, driving marked reductions in ceded reinsurance. In this environment, reinsurers have to compete strongly to win business.

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The primary market is somewhat soft, despite increased costs. For reinsurance programs with good experience, clients are looking to keep increases to leveraged trend or less. For programs with higher than expected losses, many cedents were willing to increase retentions to keep costs down. This motivates reinsurers to compete strongly for available business despite uncertainty around the potential impacts of health insurance reform on business performance.

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Rates in this sector were very competitive on the primary side and, accordingly, cedents in this market were highly price sensitive and actively managed their reinsurance purchases. Excess of loss reinsurance renewals were generally orderly with rates in line with target loss ratios plus a reinsurer margin. Typically cedents saw excess of loss rates flat to increasing 5 percent.

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Focus on Asia Pacific

The main concern for the insurance market in the Asia/Pacific region is the frequency of loss, with several carriers having more than one loss occurrence in the year.

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Primary insurers are operating in a competitive pricing environment with declining exposure bases putting their premium income under pressure. Particularly in the large to mid-size insured environment there is aggressive competition for new business that is preventing rate increases and in many instances resulting in rate decreases, especially if insureds have not obtained competitive bids in the last few years. In the small insured and personal lines business there is more stability and in some instances rate increases were warranted because of loss experience. The outlook for primary insurers in 2010 is for continued flat to 5 percent decreases in average rate due to a strong competitive environment, subject to remaining above minimum premiums or a substantial change in exposure bases.

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The very competitive pollution liability and combined general liability/pollution liability segment exhibited insurance rate changes that were in a range from flat to a 15 percent decrease. The competitive market led to more insurers offering coverage for non-owned disposal sites (NODS) on a blanket basis and broadened mold clean-up coverage. The cost cap segment is a smaller market exhibiting signs of hardness not seen in the other environmental segments with primary rate changes ranging from flat to 10 percent increases. Developing issues in the environmental space include Chinese drywall, global warming-related litigations and green house gas effects.

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Despite the slight rate increases that aviation underwriters experienced in the final quarter of 2008, as 2009 began they could foresee another difficult year ahead.The events of September 11, 2001 left the insurance and reinsurance markets reeling. Immediate rate rises enabled the market to rebound. However, an improvement in aviation operational safety standards and a lack of major liability losses in the intervening years created an environment where premium levels fell, year on year. Aviation insurers had cause for concern.

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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.

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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.

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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.

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