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CNA weighs up opportunistic professional lines treaty

Major US insurer CNA is considering returning to the reinsurance market to seek protection for its professional lines book after running the book net for a number of years, The Insurance Insider has learned.

Sources said that CNA and broker Aon Benfield have been testing the casualty treaty market for a number of weeks with a view to determining its appetite for writing a new programme.

It is believed that the Chicago-headquartered carrier is considering placing a quota share treaty at 1 January covering lines including directors' and officers' and errors and omissions.

Sources said that CNA is only expected to pursue a placement if it can secure terms that will significantly improve the net profitability of the retained portion of the book. "CNA is only going to do this if they feel they can get enough override on it," one market source remarked.

CNA is a major player in the US professional lines market but - like many major carriers - has not felt the need to reinsure its book in recent years.

The potential move is reminiscent of XL's decision to purchase a sizeable quota share on its professional lines book at the tail-end of last year.

XL had initially geared up to cut its reinsurance spend in this area. But following representations from carriers including Arch Re - which was fronting for a pending joint venture - and the now-defunct Southport Re, it opportunistically opted to quota share out roughly 40-50 percent of its book.

The 35 percent ceding commission, on a book that XL writes with an expense ratio of 22 percent, set a new high watermark for proportional deals in a market that was already very soft.

Since it was struck, ceding commissions have continued to gallop forwards, with other cedants playing catch-up, although many are still receiving cedes that fall below this level. A small number have since secured even more favourable terms.

Liberty Mutual renewed the quota share for its injury lines on 1 October. Broker Aon Benfield is believed to have stretched the ceding commission by another 2 or 3 percentage points to 34 percent, although one of the major continental carriers is believed to have signalled a more hard-line stance as 2015 approaches by leaving the programme altogether.

Treaty underwriting sources have said that the misalignment between reinsurers and cedants has now become so pronounced that ceding commissions will have to stabilise, although some of the pressure could switch towards excess-of-loss risk covers.

Over the last 18 months major US carriers have shown a willingness to take more business net, with Travelers and Chubb dropping treaties and Liberty Mutual consolidating its covers worldwide to retain more. This fall in demand has been married to an influx of "refugee" capital from the cat market.

CNA did not respond to request for comment.

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