Outlook for 2006
 by Charles Crispin, President & CEO, Evergreen Re

Although the impact of the season’s three big hurricanes have dominated the news about the property & casualty reinsurance insurance industry, the severe weather will not have a major, direct impact on the healthcare reinsurance industry.

As of late October, the three hurricanes were expected to generate more than $30 billion in claims, prompting many P&C insurance companies to declare losses for the quarter and to announce rate increases for 2006.

A few large reinsurance carriers that offer both P&C and health reinsurance have separate divisions and separate reserve accounts for the business units. Other health reinsurance carriers have no P&C business.

Most healthcare reinsurance analysts are predicting moderate pricing increases for 2006, largely driven by trend and “competition for capital” from P&C lines. A recent Hewitt Associates report found overall healthcare benefits costs for businesses will rise 9.9% in 2006, following a 9.2% rise in 2005.

One emerging trend in the healthcare reinsurance market likely to continue into 2006 is the demand for comprehensive protection and away from “inside limits” or ceilings-like average daily maximums (ADMs). By raising both the inside limits and the deductible (e.g. from $100,000 to $200,000), health plans and other payors may obtain higher coverage efficiency and predictability.

Over 50% of health plans still have internal limits on their reinsurance, but that is down considerably from two years ago. Many of these same plans are also still just insuring inpatient claims. We believe we will see more plans move in the direction of a more effective and predictable catastrophic risk protection program. Health Plans are facing unprecedented demands from major new initiatives – from HIPAA and electronic records to consumer driven product development and Part D. These critical initiatives absorb top management time and capital. In this environment, increased MLR predictability and surplus protection is critical.

Raising or eliminating inside limits increases premium rates while raising deductibles will lower premium rates. We have found the only way to optimize the decision for our clients is by working closely with them to find a balance of coverage that results in the greatest overall reinsurance efficiency, based on their individual risk appetite.

On a personal P&C note, I have had the eyes of three major hurricanes pass over my house in the past 13 months. In reinsurance terms, I have experienced excess frequency and severity risk. We’re due for some dry weather down here.