Group Health Renewal: Price, Terms and a Broker's Ultimatum

Start from the technical rate need, not the broker's ask.

• Decompose the loss ratio. 118% includes three large claims. Compute the excess-of-₹1 crore loss ratio separately (say 95%) and load large losses explicitly. If the three claims are genuinely one-off, a full 26-point increase lacks credibility; if frequency is up 14% across the book, the deterioration is systemic and normalising large losses will not save it.
• Trend forward, not backward. Medical inflation at 12%, ageing of 2.4 years (roughly 3–5% extra cost) and utilisation drift all apply to the coming year's expected loss ratio. Last year's ratio is a starting point, not an answer.
• Cost of the treaty. The ceding commission cut from 22% to 15% is about ₹3.4 crore on ₹48 crore ceded - a direct margin hit - and the 105% loss-ratio cap will be breached, raising the effective reinsurance cost.
• Credibility and target. 12,000 lives over several years is credible for frequency but thin for severity. Price to a target combined ratio around 98–100% and set a walk-away floor at the marginal cost of capital.
• Change structure, not just rate. Raise deductibles, price or restore the co-pay for senior employees, cap room rent to negotiated network levels, require annual health checks for chronic members, and offer a re-rating clause at each anniversary.

Quantify before reacting. Premium ₹96 crore at a 118% loss ratio is roughly a ₹17 crore underwriting loss before investment income. An 8% rate cut takes premium to about ₹88 crore and, on unchanged claims, deepens the loss to roughly ₹25 crore. The gateway value of 40 mid-size groups does not justify subsidising a loss-making account - and those groups will demand the same terms once the precedent exists.

Use a walk-away price: the rate at which the account contributes nothing beyond variable cost. Below that, losing it is the better outcome. But test the assumption first:

• Are the three large claims fully attributable to this policy year, and is any of the cost recoverable elsewhere (prior-year experience refund, other policies)?
• Is the 14% frequency rise concentrated in a handful of members (adverse selection)? Deductibles and waiting periods can remove it cheaply.
• Is the competitor's quote likely to survive at claim time - narrower network, unlisted hospitals, non-payment risk?

Offer a lower headline rate with a structurally different product: higher deductible, restricted network, lower sum insured, co-pay retained. That meets the broker's optics without destroying margin. A two-year deal with an annual re-rating clause is the sensible compromise - it keeps the relationship and preserves the right to reprice.

The treaty is 50% quota share, commission now 15%, loss-ratio cap 105%.

• The cap will bite. A 118% underlying loss ratio means the ceded loss ratio exceeds 105%, triggering the cap - the reinsurer recovers profit commission or applies a rate adjustment. Model this as a variable expense in the renewal price rather than ignoring it.
• Capacity is not the constraint; economics are. A 50% share already cedes half the loss, but the reinsurer will resist taking more on a deteriorating account without a rate increase.
• Consider a different shape. A 40% quota share plus a per-risk or aggregate stop-loss would protect the tail from large claims more efficiently than buying more quota share.
• Test the net position after the treaty under a scenario of two further ₹2 crore claims and a 15% frequency rise. If the net loss ratio exceeds the treaty's cap again, the renewal is unprofitable regardless of rate.

Tell the treaty underwriter the full story - claims movement, ageing, broker pressure, the proposed remediation - and ask for a realistic renewal indication before quoting the client. Quoting before you know the reinsurance cost is how portfolios end up retaining risks the capital does not support.