US casualty tops reinsurers’ concerns as renewal negotiations begin

The reinsurance market is broadly stable following flattening of rates in many lines this year but reinsurers remain wary of several sectors, including US commercial liability risks.

During presentations at the Monte Carlo Rendez-Vous this week, market executives said liability loss trends continue to worsen, while the property reinsurance sector is stable, and they continue to see opportunities in the cyber liability market.

Fitch Ratings has revised its outlook for the reinsurance sector to neutral from improving, saying profitability should continue but has peaked for reinsurers over the past two years.

“We expect the trends in the key credit drivers to remain broadly stable for the sector in the next 12 months,” said Manuel Arrive, Paris-based director in Fitch’s insurance group.

“We believe the cycle has most likely passed its peak, but the market conditions should remain broadly favourable and supportive of strong returns,” Arrive added.

Fitch forecasts a reinsurance industry combined ratio of 88.2% for 2024 and 90.2% for 2025, which would be slightly deteriorating from 2023’s 87.3%.

The Rendez-Vous, where brokers, reinsurers and others meet annually to discuss market trends, traditionally marks the beginning of the 1 January season.

This year’s renewals negotiations could be difficult in some lines, said Thierry Léger, CEO of Scor, noting US casualty reinsurance negotiations could prove challenging.

“We think US casualty is going to be a segment where we see significant, difficult discussion,” he said.

Léger said a “lack of tort reform” and the US “litigation industry” is driving up loss costs.

Fitch also identified US casualty as a “hot spot”.

“We continue to see rising loss costs from social inflation, litigation finance trends and the so-called nuclear verdicts of losses of above $10m. This has led to adverse reserve developments,” Arrive said.

Munich Re is prepared to walk away from some US liability business, said Thomas Blunck, chair of reinsurer’s board of management. “We have no problem giving up volume if the terms and conditions are insufficient,” he said.

Swiss Re’s US liability combined ratio is “not a pretty number”, said Gianfranco Lot, chief underwriting officer for reinsurance at the carrier, without giving specific figures. “It wasn’t a profitable book.”

Swiss Re has an appetite for casualty business outside the US, Lot said, “But in the US, Swiss Re continues to be very cautious around this line of business.”

The reinsurer expects a contraction in US liability business because median primary limits being purchased by commercial policyholders have dropped.

Meanwhile, the property reinsurance market remains stable, several executives said.

“If property remains favourable, and we think it will be in view of the exposure trends… then we have no restrictions on our side to put our capital at risk and to support our clients,” said Munich Re’s Blunck.

“The overall reinsurance market and the capacities should be good enough in order to cope with the demand,” Blunck said. But, he added, “there is definitely not an excess of capital in the reinsurance market”.

Swiss Re’s Lot said demand for reinsurance is rising, driven mainly by increased property values and “urbanisation”.

Hannover Re said in a statement that the North America market has now settled on an adequate level in short-tail lines. “Property business continues to benefit from further increases in primary insurance premiums, while demand for insurance products remains strong,” he said.

Reinsurers continue to see growth opportunities in cyber reinsurance.

The cyber market is “going to grow significantly over the next couple of years,” said Urs Baertschi, CEO of P&C reinsurance for Swiss Re.

Recent high-profile events have “raised awareness that cyber actually is a proper risk and needs proper insurance, and so we believe over the next couple of years, the compound annual growth rate will be significant double digits,” he added.

Cyber capacity, though, will be limited by risk aggregation threats, said Scor’s Léger. “In cyber… everything is correlated,” he said, emphasising the increasingly digital and connected nature of global business.

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