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4 Reinsurance Trends to Watch

September is Reinsurance Month! We’re closing out the month with insight into four market trends affecting capacity limits and pricing.

September 27, 2021

The reinsurance market generally has a reputation for being disciplined and responsible, making appropriate adjustments in response to market conditions. While societal trends, COVID-19 and natural catastrophes have created uncertainty and varying pricing, reinsurance market conditions continue to remain favorable.

“Improving primary rates, terms and conditions have attracted an abundance of reinsurance capacity to the market,” said Kim Barnett Vice President – Head of Casualty, Treaty Reinsurance at Safety National. “However, reinsurers should remain responsible and reflect the offsetting trends of increasing loss costs and uncertainties driven by social inflation and the pandemic.”

Keep a close eye on these four pricing and market condition trends affecting the reinsurance marketplace.

1. An abundance of reinsurance capacity exists for most lines of business, creating fairly stable market conditions overall.

Historically low interest rates and limited alternative investment opportunities coupled with tighter primary terms and conditions have led to an abundance of reisurance capacity in the market. The restriction of pandemic coverage in new and renewed contracts should also reduce the potential for future property and casualty reinsurance exposure. Professional liability and excess casualty/umbrella, in particular, has seen a healthy increase in capacity.

2. Improved underlying market conditions over the last few years have spurred some new and additional reinsurance capacity into the casualty marketplace.

The casualty market is proving its value as a good diversifier for reinsurers given challenged property experience, along with robust primary casualty rate levels and thoughtful original limits management. The positive rate momentum has created a great distraction from social inflation concerns, even with underlying economic pressures. The quota share market has seen new capacity with many reinsurers focusing on growth due to recent market conditions.

3. The trend of increasing primary rates and primary limit reduction continues, especially for excess and professional liability lines.

For the most part, appropriate pricing is holding in the reinsurance market, but on the professional and excess liability side, there have been substantial primary price increases in segments that are responding to less-favorable emergence in past accident years. Natural catastrophes and social inflation have led to increased loss activity, with COVID-19 adding to the uncertainty. These risks are also becoming increasingly difficult to model.

4. Social inflation, increasing loss trends and communicable disease exposures remain key components of reinsurance pricing.

Claims costs are increasing in unanticipated ways due to increased jury awards against insurance carriers, otherwise known as “nuclear verdicts.” Part of this could be caused by society’s desensitization of large jury verdicts, but an erosion of the trust in corporate America may also be to blame. While the market has seen premium growth due to rate increases, there are COVID-19-related offsets which remain an additional uncertainty and concern for potential future exposures.