Liability ,Property Reinsurance Rates Still Headed Upward


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Most property reinsurance rates will continue to rise at Jan. 1 renewals as losses and inflation put pressure on property reinsurers and concerns over rising court awards make liability rate hikes likely, too. Last week you were reading Reinsurers Look Ahead To Uncertain Future. This week we’re bringing you:


What’s happening with US P&C insurers?*



Private property-casualty insurers in the US reported strong net income growth in the first half of 2021 as the country continued to recover from the economic impact of the COVID-19 pandemic, according to a report from data analytics provider Verisk and the American Property Casualty Insurance Association (APCIA).

Insurers’ net income rose to $37.5 billion in the first half of 2021, up from $24.3 billion in H1 2020, according to the report. The annualized rate of return on average policyholders’ surplus – a key measure of overall profitability – rose to 7.9% in the first half of 2021, up from 5.8% in the first half of 2020. The industry’s combined ratio improved to 96.7%, according to the report.

Insurers wrote $24.4 billion more in premiums during the first half of the year ($348.4 billion) than in the same prior-year period ($324 billion). Earned premiums grew 5.3% to $329.1 billion for H1 2021. Renewal pricing for standard commercial lines – general liability, commercial auto, and commercial property – rose 6.7% in the first half, compared to 7% in 2020 and 5.1% in 2019, according to Verisk.

Increasing economic activity may have resulted in more insurance claims as commuters hit the roads again, businesses resumed operations, and material and labor costs rose, according to the report. Incurred losses and loss adjustment expenses (LLAE) were up 6.9% in H1 2021 to $229 billion, a significant spike from the 0.8% rise in H1 2020. Catastrophe LLAE contributed $28.9 billion to total LLAE (up from $24.7 billion in H1 2020), while non-catastrophe LLAE rose 5.6% to $200.1 billion.

Find out more in-depth here.


Why Reinsurance Prices Are Wrong—and How to Fix Them*



Each reinsurance renewal season sees brokers feverishly chasing down the best premium prices in the market. Frequently, when the panel of reinsurers offer their submissions for a slice of treaty, the broker will discover that the treaty is oversubscribed and will have to go back to the markets to reduce each reinsurer’s commitment by a certain percentage, in a process called signing-down—but the price stays the same.

During this price-discovery process, brokers do their best to get an indicative price of what the market will accept, but “every time a risk is oversubscribed, it means the broker has gotten the price wrong and the ceding company has paid too much; it’s like you’ve left money on the table—perhaps millions of dollars for a single treaty,” according to Sean Bourgeois, founder and chief executive officer of Tremor, the Boston-based technology firm.

While insurers and reinsurers know that an oversubscribed program means that it was overpriced, “until recently no one’s been able to show exactly by how much,” he said in an interview with Carrier Management.

Brokers do their best to clear a market price, but it is difficult to calculate because “you need really serious computing power to do that properly,” he added. “Computers can do this a lot better than people because it involves a complex mathematical problem when you have to consider 20 reinsurers that all have different preferences for price and quantity.”

Find out more in-depth here.


Property, liability reinsurance rates still headed upward*



Most reinsurance rates will continue to rise at Jan. 1 renewals as losses and inflation put pressure on property reinsurers and concerns over rising court awards make liability rate hikes likely, too.

Some high layers of reinsurance coverage, though, which are less affected by frequent losses, may see flat renewals, experts say.

So-called social inflation is affecting various liability lines, and cyber liability reinsurance coverages could also face difficult placements, they said last week during interviews at the annual meeting of the American Property Casualty Insurance Association in Denver. The event, where insurers, reinsurers and brokers gather, is seen by many as the informal start of talks leading to Jan. 1 reinsurance renewals.

On the property side, lower attaching coverage layers and aggregate coverages – anything that is subject to frequent smaller and mid-size events – have been hit by losses over the past five years, said Rob Bredahl, CEO of TigerRisk Partners LLC in Summit, New Jersey.

“They are going to be very difficult to place,” Mr. Bredahl said. Rate increases, though, are difficult to predict because attachment points may also rise as coverages are restructured.

Damages caused by the increased frequency and severity of these smaller and mid-sized events have resulted in higher loss activity in the last five years compared with the “prior several decades,” said Keith Wolfe, president of U.S. P&C at Swiss Reinsurance Ltd. in New York. “We think there’s been a step change, and this is why we’re seeing losses creep up.”

“Most of the rate adjustments in the property space have really been based on losses,” he said.

Find out more in-depth here.


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