Analysts at Deutsche Bank have said that the insurance market is anticipating increases in excess of loss UK motor reinsurance pricing of as much as 100% in some cases, as the impact of the Ogden Rate change is factored in.
The Ogden Rate change is estimated to have cost insurers and reinsurers £3.5 billion in 2016, which it’s believed will result in a predicted average motor insurance premium rate increase of 9% this year.
Part of the premium rate increase is to cover an expected hike in reinsurance pricing, as reinsurers who have borne much of the initial cost related to the Ogden Rate change look to offset their own losses.
While UK motor insurers have been expected to increase premium rates in advance of their reinsurance renewals, which are largely at July 1st or January 1st, this could actually be viewed as opportunistic.
Many UK insurers still have reinsurance coverage in place and by pushing through post-Ogden price rises quickly those with lower retentions are actually benefitting from an arbitrage of sorts, as their reinsurers pick up any claims escalation while they benefit from a few weeks or months of higher premium rates before their reinsurance costs rise.
Deutsche Bank’s analysts believe that once the first excess of loss reinsurance programs are renewed in the coming days, the rate of insurance premium price increases could accelerate.
Interestingly, the analysts believe that the premium increases that UK insurers put in place should be more than enough to over Ogden costs, plus reinsurance price rises, as well as attritional claims inflation.
There are factors for reinsurers to consider before hiking prices though, as market conditions of course play a role but also “the trade-off for reinsurers between higher lump-sum claims costs and a lower propensity for longer duration PPO claims,” the analysts say.
But still market estimates forecast 50% to 100% increases in reinsurance pricing, which are significant.
Insurers with higher retention limits on their excess of loss reinsurance cover may need to push their premium rates higher, Deutsche Bank’s analysis shows, which suggests that demand for reinsurance for UK motor insurers may increase as they try to reduce their retention levels down to those commanded by the largest firms.
Cost per policy in £ for excess of loss cover, and primary price increase required to offset a 75% uplift in reinsurance cost (both Deutsche Bank estimates)
