P&C Composite Rate Up 2% in Fourth Quarter

Rate adjustments for property and casualty insurance in the United States for fourth quarter 2017 were plus 2% compared to plus 1% in the third quarter of 2017, with automobile and transportation seeing the largest increases, MarketScout reported.

Richard Kerr, MarketScout CEO commented that insurers were prepared for their losses. “Underwriters are rarely surprised by aggregate losses because they have so many pricing and modeling tools. Most insurers are assessing rate increases at a moderate pace. Automobile and transportation accounts incurred the largest rate increases at plus 5% over prior year pricing.”

In the reinsurance sector, William Hawkins, director of European insurance research at KBW made a similar observation of P&C Jan. 1, 2018 renewal pricing, stating in a podcast that, “the big four European reinsurers will have achieved 2% rate increases this [renewal] season.” He added that “the message from Monte Carlo, that the 2H 2017 natural catastrophes should draw a line under rate cuts across the board, has been delivered. But we think the upside for property catastrophe has been capped by the ongoing plentiful supply of capital.”

By coverage classification, MarketScount noted that all coverages except D&O, professional liability and auto had rate increases from the third quarter of 2017 to fourth quarter 2017. Property increased the most, from plus 1% to plus 3%.
On average, underwriters assessed rate increases for all industry groups except transportation and public entities. “Keep in mind, rates are calculated on a composite basis and represent exposures from businesses across the U.S. Insureds in catastrophe exposed areas incurred higher rates/premiums,” Kerr said.
MarketScout also noted that large accounts were seeing increases averaging 1%, while others saw 2% increases.

Lloyd’s Finds Extreme Weather Can Be Accurately Modeled Independently

In a new report based on research from UK national weather service the Met Office, Lloyd’s has found that extreme weather events may be modeled independently. While extreme weather can be related to events within a region, these perils are not significant correlated with perils in other regions of the world.

The study’s key findings include:

  • Met Office research found that the majority of perils are not significantly correlated, but identified nine noteworthy peril-to-peril teleconnections, most of which are negatively correlated
  • Lloyds’ modeling finds that these correlations were not substantial enough to warrant changes to the amount of capital it holds to cover extreme weather claims
  • Even when there is some correlation between weather patterns, it does not necessarily follow that there will be large insurance losses. Extreme weather events may still occur simultaneously even if there is no link between them
  • An assumption of independence for capital-holding purposes is therefore appropriate for the key risks the Lloyd’s market currently insures
  • The methodology released in the report enables scenario modeling across global portfolios for appropriate region-perils

“This important finding supports the broader argument that the global reinsurance industry’s practice of pooling risks in multiple regions is capital efficient and that modeling appropriate region perils as independent is reasonable,” the report concluded.

According to Trevor Maynard, head of exposure management and reinsurance at Lloyd’s, “This challenges the increasingly held view among some regulators around the world that capital for local risks should be held in their own jurisdictions. Lloyd’s believes this approach reduces the capital efficiency of the (re)insurance market by ignoring the diversification benefits provided by writing different risks in different locations and, in so doing, needlessly increases costs, to the ultimate detriment of policyholders. Insisting on the fragmentation of capital is not in the best interests of policyholders.”

Check out the map below for further insight from the Met Office about large-scale weather perils that do demonstrate statistically significant correlation:

lloyd's extreme weather perils

Soft Market Conditions Present Biggest Challenge for Reinsurance Industry, Survey Finds

Ongoing soft market conditions are the most widely-cited challenge facing the global reinsurance industry in 2015, according to a global study of reinsurance professionals by insurance software company Xuber. For its Global Reinsurance Survey, the company spoke with senior professionals including insurers, reinsurers, brokers, industry organizations, lawyers, insurance-linked securities (ILS) investment managers, analytics firms and modelers, across the U.K., U.S., Bermuda, Canada, Channel Islands, Cayman Islands, Germany and Switzerland about the top concerns and biggest opportunities facing the reinsurance industry today. Of those polled, 81% listed soft market conditions among their top five concerns, followed by competition from third party capital (66%), and mergers and acquisitions (M&A) (66%).

The top five challenges cited were:

Xuber Global Reinsurance Survey challenges

Experts within the field do see plenty of growth opportunities as well. Indeed, some of this potential is thanks to the soft market. According to the report, “Another opportunity in the soft market identified by 59% of executives was to create niche opportunities that showcase their expertise. In a squeezed market, opportunities can open up for enterprising businesses that can identify today’s emerging risks and those of tomorrow and create products that are tailored for them. This can be linked to using Big Data better (51%) and diversifying the business portfolio (42%).”

The top five business opportunities cited were:

Xuber Global Reinsurance Survey opportunities

“This survey unearthed a range of new business opportunities that can provide the competitive edge needed to survive and prosper in the current environment,” said Chris Baker, executive director at Xuber. “With margins tight and prices falling, reinsurers are under great pressure to ensure their processes are as efficient as possible. Surviving and prospering in the soft market will require companies to operate at optimal efficiency, and their IT systems will be central to this. Only the savviest of reinsurers who recognize that technology can be the catalyst for change will emerge unscathed.”

Other key insights from the study include:

Xuber Global Reinsurance Survey


Industry Submits Comments on International Tax Reform

On November 19, 2013 the Senate Finance Committee released its proposals for reforming the United States international tax system with the goal of making U.S. businesses more competitive. One of the provisions included in the draft was the reinsurance tax, commonly referred to as the “Neal Bill.” This provision, introduced in the past few legislative sessions by Rep. Richard Neal (D-MA) and Sen. Robert Menendez (D-NJ), would disallow an income deduction for reinsurance premiums paid by an U.S. insurer to an affiliated reinsurer if the reinsurer is not subject to U.S. federal income tax on the reinsurance premiums. Over the past few weeks, several groups have taken the opportunity to comment on the committee’s draft, and specifically the inclusion of the Neal Bill language.

Upon release of the discussion draft, the Coalition for Competitive Insurance Rates (CCIR) expressed its opposition to the inclusion of the Neal Bill provisions. “The decision by Sen. Max Baucus (D-MT) to include this provision in the Finance Committee’s draft ignores warnings from elected officials, state insurance commissioners, trade experts and consumer advocates that this tax would drive up the cost of insurance to homeowners and small businesses.”

Many members of CCIR, including RIMS, also took the opportunity to express their opposition to the tax. In a December letter filed with the Senate Finance Committee, RIMS President John Phelps stated RIMS opposition to the draft because of the “demonstrable negative implications for the global reinsurance market and the United States businesses that rely on this market. The current system allows companies to cede reinsurance, freeing capital to provide more insurance to domestic consumers and thus maintain reasonable premiums.”

Allianz of America, Munich and Swiss Re filed a joint letter stating the reinsurance provisions would “disrupt essential risk distribution practices followed by domestic and foreign insurers, alike; increase premiums and reduce coverage available to U.S. consumers, particularly in catastrophe prone areas along the coastlines.”

James Donelon, Louisiana commissioner of insurance has stated that the discussion draft “could ultimately result in citizens in disaster-prone states like Louisiana being faced with higher premiums for their property insurance.”

Bill Newton, executive director of the Florida Consumer Action Network, expressed similar sentiments. “By increasing taxes on foreign-based reinsurers, consumers would face lower insurance capacity, diminished competition in the insurance market and, most importantly, higher prices. These measures are counterproductive to the job of revitalizing and strengthening the American economy. Ultimately, the cost of increased taxes will not fall on the foreign based reinsurers, but instead on consumers and businesses in Florida and other states.”

While, many continue to oppose the Neal Bill provisions there is one group supportive of the measure. The Coalition for a Domestic Insurance Industry, led by W.R. Berkley Corp., Travelers and Chubb, has consistently supported similar legislation in the past. In a May 21 statement, William R. Berkley, in reference to the re-introduction of the Neal Bill legislation, stated that “closing unintended loopholes to recover lost revenue is one of the best ways to offset the cost of needed tax reform. Closing this loophole, staunching the flow of capital overseas, and restoring competitiveness for this important domestic industry is a win for all.”