Fitch Ratings said reinsurers are likely to push for double-digit U.S. casualty rate increases during January renewals to keep up with loss trends from social inflation.
The rating agency in a new report changed its outlook of the global reinsurance sector to ‘neutral’ from ‘improving.’
On top of rate increases, which started at mid-year renewals with 15% upticks for loss accounts and 10% increases for accounts without losses, Fitch said it expects lower limits and quota-share commissions.
“Reinsurers’ concerns that market prices are too low is leading them to prune their exposure and limit capacity in the lines of business most affected by adverse loss development,” Fitch said. “Munich and Swiss Re, in particular, have significantly reduced their exposure. Reinsurers are also asking for more granular information from cedants as they tighten their risk selection. Meanwhile, demand from cedants is increasing, leading to a widening supply and demand gap and adding to the upward pressure on pricing.”
Related: US Nuclear Verdicts Break Records and Drive Social Inflation to 7% in 2023: Report
Fitch said Swiss Re was one of several reinsurers to add to U.S. casualty reserves, along with PartnerRe and Axis. The bolstering of reserves was simultaneously done out of need and preemption—taking advantage of strong property reinsurance results. Years 2015-2019 has seen incurred-loss development, and longer tail casualty lines could face additional adverse reserve developments. Fitch added.
“More importantly, it is not clear whether U.S. casualty incurred-loss estimates for accident years 2021-2023 will be sufficient,” Fitch said.
Loss costs will keep rising on social inflation and U.S. litigation abuse, with “considerable challenges” for casualty reinsurers due to liability from opioids and PFAS, known as “forever chemicals.” However, Fitch said it does anticipate reserve weaknesses to affect capital to the extent seen in the late 1990s and early 2000s, when the rating agency had to take negative rating actions on reinsurers.
Topics Trends USA Reinsurance Casualty
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