Analysts at S&P Global Ratings have said that sentiment was both stronger and more broad-based in casualty/specialty lines than in the property arena at the January 1st reinsurance renewals.
In U.S. non-proportional business, rate increases were substantial and ceding commissions on this business were down by as much as 3% in some lines.
With proportional business the story is somewhat different, and analysts note that for the most part, reinsurers are banking on the primary insurance companies driving substantial rate increases, which in turn will filter through to the proportional reinsurance business.
“The pricing story was more compelling in the casualty/specialty lines, especially in the U.S.,” say analysts.
In general liability, excess casualty, umbrella, D&O, E&O, medical malpractice, trucking, and A&H lines of business, primary rates are up in a meaningful manner.
“The contraction of capacity by AIG and Lloyd’s, increasing frequency and severity trends owing to social inflation in part caused by large jury awards, elevated risk from the #MeToo movement along with lowering of the statute of limitations, and higher claims settlement for auto and liability are underlying drivers feeding into the trend,” say analysts.
During 1/1, international casualty business failed to see much underlying rate change and S&P attributes this to the fact that by and large, performance has held up well, although there are some signs of firming in areas experiencing adverse trends. The focus here was more on increasing reinsurance rates, say analysts.
Continental Europe was flat to down at the renewals depending on the performance, with the exception of certain pockets of motor and professional lines business, which was actually slightly up during the period.
“In view of AIG’s and Lloyd’s corrective underwriting actions and dismal performance, rates also have been hardening in the specialty businesses including marine, hull, aviation, engineering, cargo, and energy. Asia-Pacific’s and Latin America’s experience was flat from a rate perspective,” explain analysts.
Another area of the market worth mentioning is the U.S. mortgage reinsurance space, where conditions remained stable at 1/1, according to S&P Global Ratings. This business does renew throughout the year so stability at Jan 1st isn’t too surprising. Analysts note that within the mortgage space there is some pressure on reinsurance rates as a result of the tighter spreads GSEs receive on their business placed in the capital markets, but note that reinsurers have been able to hold off.
“Lack of cross-subsidization from the property catastrophe business, low interest rates, and adverse loss trends in many lines will keep the pressure up. While the reinsurers will continue to bank on the rate increases being pushed on the underlying business by the primary insurers, there will be a strong effort to lower ceding commissions, tighten the terms and conditions, and achieve higher and adequate returns,” say analysts.
