Comp Reinsurance Prices Stabilize, Says Guy Carpenter

Guy Carpenter said it found that multiclaimant workers' compensation catastrophe layer ROLs dropped on average by 2.3 percent, but the ratio of ROL increases to ROL decreases was fairly balanced.

Forty-three percent of programs renewed with increasing ROLs, while 46 percent renewed with decreases. Eleven percent renewed as expiring.

Where there was movement in ROLs, it appears that swings in subject premium projections drove pricing changes more than a competitive reinsurance market or underlying exposure changes, the brokerage found.

Single-claimant workers' comp program rates, on average, were reported to have experienced a slight decrease of 1.2 percent. But 65 percent of the layers renewed at the expiring rate. The largest decreases were attributable to smaller programs with significant subject premium increases and favorable loss experiences.

Heading into the Jan. 1 renewal, across-the-board increases in reinsurance rates had seemed like a distinct possibility, Guy Carpenter said. It noted that reinsurers claimed their ability to replenish capital was in doubt and that the cost to do so was increasing.

Though similar attempts to raise rates were made with little success during the January 2006 renewal, in the wake of Hurricanes Katrina, Rita and Wilma, the financial events of September and October 2008 were fresh in everyone's minds, adding a sense of urgency to the situation for 2009 renewal, said the brokerage.

The quoting process proceeded as it had in past years, and firm orders were established based on the more aggressive quotes offered, Guy Carpenter reported.

Larger capacity and California earthquake-exposed multiclaimant catastrophe programs did not experience the same level of oversubscription as in years past and took additional time to complete. There was some reinsurer displacement, and several prominent reinsurers withdrew or reduced capacity, the firm noted.

It said price remained the primary driver for cedents, though market security and reinsurer ratings gained ground, particularly as a result of the ongoing financial catastrophe.

The trend of maximum any one life (MAOL) warranty increases continued, with more than 50 percent of the renewing catastrophe programs increasing the MAOL warranty beyond $5 million.

Guy Carpenter forecasted that terrorism capacity and coverage options for terrorism will continue to emerge for workers' comp, especially for smaller clients with footprints outside major metropolitan areas.

Seventy-seven percent of the layers at Jan. 1 renewed with terrorism coverage excluding nuclear, biological, chemical and radiological (NBCR) attacks. Although there was an increase in the number of layers providing NBCR coverage, reinsurers remain very cautious providing significant terrorism capacity which includes NBCR coverage, the company found.

To improve pricing, coverage terms and the availability of capacity, Guy Carpenter said cedents and intermediaries will need to focus on accumulation management, underwriting standards and claims management.

"We expect that rating agencies will continue to develop loss scenario and accumulation stress testing, which will require clients to continue to refine, define and demonstrate the quality of the location data collected," the firm said.

The brokerage said also that its workers' comp specialty practice will be monitoring and reporting the effects of the economic slowdown on payrolls–which will have an effect on projected premiums and may affect loss patterns and loss ratios.