Unexpected discount rate change was a particular problem highlighted by reinsurers

The UK motor market continues to be problematic for reinsurers, with Willis Re pinpointing a number of issues in its 1st View report released in line with the 1 January renewals season.

One of the key issues was the revision of the discount (aka Ogden) rate, which disappointed excess of loss reinsurers who had been expecting a positive number.

”This led to a market-wide re-pricing to address the discrepancy between previous modelling assumptions (generally 0% or marginally positive) and the new reality,” it said.

The situation was made worse by a continuing poor investment environment, the report said. This led to reinsurers emphasising ”the need for pricing improvements on long-tail lines to counter the lack of the return on their investment funds”, it added.

”Considerable divergence in excess of loss rate movements reflecting the wide range of retentions and individual portfolio circumstances, which, given the leveraged impact of severity, impacts lower layers less than higher layers.

”Counterintuitively, given the stabilising claims settlement environment, there has been little influx of new capacity, a pattern that strengthened the hands of the incumbent markets.

”Buying patterns have not shifted materially in consequence of this, but some examples where higher paying lower layers have been jettisoned or reduced,” it concluded.

On the wider UK reinsurance market, it said that pricing was “broadly risk-adjusted flat”, with some “modest” reductions across the market following a benign natural catastrophe year.

It also reported ”a greater divergence in reinsurer views this year, driven by recent international natural catastrophe losses, increased retrocession costs and various catastrophe model adjustments impacting some reinsurers more than others”.

Willis Re releases its 1st View reports three times a year in line with the January, April, and July renewals seasons.