A Reinsurance Market Overview for 2018 from the World of Captives

A gold arrow follows the upward growth of a bar graph and a gold dollar sign supports the tilt of a globe of gold continents

March 21, 2018 |

A gold arrow follows the upward growth of a bar graph and a gold dollar sign supports the tilt of a globe of gold continents

Michael Woodroffe, president of Kirkway International Limited, provided a reinsurance market overview for 2018 at the World Captive Forum. Mr. Woodroffe commented on various aspects of the market. Here is some of what he had to say.

Catastrophe Coverage

Mr. Woodroffe said that multiple US catastrophes in 2017 have been offset by abundant excess capacity, which has kept pricing under control for excess layers not hit by losses. For excess layers that have been hit by losses, the market has seen pricing increases of 5–10 percent. According to Mr. Woodroffe, "reinsurance is a funny business" because it takes a long time to figure out precisely how much money has been lost.

As a part of the scenario, he said that the insurance-linked securities market capital came in and prevented rates from "rocketing up" while traditional reinsurers were "looking for blood" after facing 10 years of a soft market, paying out large amounts, and ending with very small rate increases. He continued, "We're living in peculiar times."

US Personal Auto and Commercial Auto

The increase in US personal auto claims frequency continues with a slight decrease in ceding commission and downward pressure from a limited pool of reinsurers that are increasingly nonrenewing bad-performing accounts, said Mr. Woodroffe. Personal auto rates have increased 50–60 percent over the last 2 years which, according to Mr. Woodroffe, are up because of cheap gas, American economic recovery, and distracted driving. He continued, "Losses for both personal auto and trucking have been galloping up."

While there is abundant excess of loss capacity for most casualty lines in the United States, commercial auto remains the exception where primary pricing and interest in captives is increasing. Further, Mr. Woodroffe explained that for captive insurers, it is still a buyer's market and there is abundant capacity, especially in Bermuda, which is looking to reinsure all casualty business from captive insurers—despite losses.

Mr. Woodroffe said the auto market has stabilized somewhat; if you have good results, you can get the coverage, and if you have bad results, you can't. In his view, the US commercial insurance industry "does not like trucking." This said, he believes that trucking is very hot in captives at the moment and is expected to be a captive growth area in the next 2–3 years for large fleets, for individual owner-operators, and for special units (in all domiciles including Europe).

Workers Compensation Catastrophe

Workers Compensation catastrophe capacity remains plentiful (especially in Bermuda) but rates have stopped decreasing, and reinsurers are repricing heavily earthquake-exposed accounts, said Mr. Woodroffe. For example, he said workers compensation captive owners will often reinsure a $2 million or $3 million buffer layer above a retention, and large excess carriers provide additional stacked catastrophic risk layers above the buffer layer.

Health Care

Consolidation among healthcare buyers has reduced the need for reinsurance, said Mr. Woodroffe. Many healthcare captives have become very successful, and as their caliber increases, they require less reinsurance. With healthcare consolidation, long-term players are getting bigger, and as a result, healthcare captives are consolidating or shutting down.


Mr. Woodroffe said construction often goes to captives because it's a tough line of business—New York and the Northeast, California, Nevada, and Utah are all tough states with tough laws. He shared that large insurers such as Lloyd's of London reinsure both above and around (quota share) for captives on an excess basis.

Retro Market

Mr. Woodroffe remarked that a hard market usually starts in the retro market (where reinsurers buy their reinsurance). He said the retro market has hardened dramatically this year and retro market pricing increases force reinsurers to take more risk or buy less cover, which eventually trickles down and is accounted for in the primary market. He thinks the trickle will show up about halfway thorough 2018. In fact, Mr. Woodroffe suspects the very large traditional insurers (Partner Re, XL Catlin, Munich Re, Swiss Re, etc.), who typically speak about their losses net of reinsurance and rarely discuss the gross (ceded) losses, have bought lots of retro coverage in light of what he perceives are their fairly small reported net losses.

March 21, 2018