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Reinsurance market remains favorable for captives


FORT LAUDERDALE, Fla. – Despite insured catastrophe losses of about $140 billion hitting insurers and reinsurers last year, the reinsurance market for captives is robust with ample capacity and low rates, a reinsurance broker said.

However, there are some areas of the market where rates are increasing, including the retrocessional reinsurance market, that may signal higher prices but also opportunities for captives, he said.

After last year’s catastrophe losses, including hurricanes Harvey, Irma and Maria, cedents that suffered losses saw increases of 5%-10% at Jan. 1, 2018, renewals, said Michael Woodroffe, president of Kirkway International Ltd., a Bermuda-based reinsurance broker.

He was speaking Thursday during a session of the World Captive Forum, which is sponsored by Business Insurance and held in Fort Lauderdale, Florida.

While reinsurers were looking for higher rate increases, abundant capacity from both traditional reinsurers and capital markets-based reinsurers kept a lid on steeper increases, Mr. Woodroffe said.

“The insurance-linked securities market has been the savior of clients this year. Huge capital came in and really stopped rates rocketing up,” he said.

Captives business is generally viewed as attractive, particularly by reinsurers in Bermuda, Mr. Woodroffe said.

Captive insurance “is perceived as the best business, and people really want to reinsure captives,” he said. There are six or seven reinsurers in the United States that focus on captives and about 15 in Bermuda, Mr. Woodroffe said.

Other than catastrophe-hit programs, a few lines are seeing some firming.

Workers compensation catastrophe rates have “stopped going down” as reinsurers become more concerned about a major loss such as a significant California earthquake, Mr. Woodroffe said. But rates are still lower than they were before the Sept. 11, 2001, terrorist attacks.

The retrocessional market, which provides reinsurance coverage for reinsurers, has hardened significantly, he said. However, increases in the retro market usually take several months to filter through to lower layers of reinsurance and primary insurance, so it remains unclear whether those increases will affect other insurance and reinsurance rates.

Insurers and reinsurers suffered significant auto liability losses in 2014 and 2015 and rates have increased. Trucking risks, in particular, are being covered in captives as U.S. primary insurers avoid trucking risks, Mr. Woodroffe said.