Rising reinsurance rates arising from PPOs and catastrophe losses could help harden the primary market, but the struggles aren’t over yet

The storm over periodic payment orders is gathering fast. Moody’s raised the alert today with a special comment highlighting concerns that PPOs will be credit negative for companies with personal injury claims exposure, particularly insurers and reinsurers.

As Insurance Times has reported, reinsurers are closely monitoring the judiciary’s new tendency to award PPOs, and are hiking up rates in consequence.

PPOs are an anathema to reinsurers because they are open-ended, and thus prevent a neat calculation of potential liability. Yet many judges feel them to be a fairer form of compensation than lump sums, given the risks attached to investing in the current economy.

The rising reinsurance rates will add yet more pressure for motor rates to continue to rise in the primary insurance market. Comparison site Tiger.co.uk reported today that motor rates are down year-on-year, but this seems likely to be an aberration rather than a trend.

Indeed, Moody’s anticipates further double-digit increases in motor rates, as the market continues to be hit with ever-rising motor injury claims. Insurers will be pleased with the Law Society Gazette’s revelation that the Ministry of Justice is at last beginning to crack down on claims management companies – but it is a case of very little, very late.

Small comfort

Insurers and brokers can take some comfort from Moody’s other prediction: that rates will rise across the market, including commercial lines. This too could be partly fuelled by developments in the reinsurance market as the impact of last year’s record catastrophe losses begins to filter through.

But there’s no risk of the market getting too optimistic: insurers and brokers alike are struggling to grow the top line as businesses continue to scale back. Canny cost-cutting means that some are still managing to increase profit, but the good times are a long way off.