Beware the profit killers

Macro trends are challenging re/insurers on many fronts across different lines, delegates at Re/Insurance Outlook USA 2024 warned.

Increasing loss trends in short and long tail business lines are challenging carriers profitability, Guenter Kryszon, Markel Specialty’s chief underwriting officer warned US re/insurers. Exploring the macroeconomic factors driving capital management, Kryszon was speaking to delegates at Intelligent Insurer’s Re/insurance Outlook USA 2024 conference, taking place in New York today (May 2).

He outlined the role of technical pricing in managing portfolios for long-term profitability across different lines of business, including casualty, professional lines and property, as well as the macroeconomic trends that influence these. 

These included issues like PFAS, so called “forever chemicals”. These have already been the subject of $11 billion of litigation – $10bn of it 3M’s settlement to help water utilities remove the chemicals  from drinking water.

“What we've been seeing today has been a focus on the manufacturers of the PFAS chemicals, but that's starting to potentially spread out further than just the manufacturers of the chemicals to companies that utilised them within their products,” he said.

“Given the size of settlements it does give us concern longer term to what that ultimately looks like.”

Broader trends, too, create a challenging environment, such as social and economic inflation. In the five years from 2014 to 2018, for instance, the number of $20 million verdicts was five times the number in the five years before.  In commercial auto, meanwhile, 2023 was the 13th consecutive year of underwriting losses, Kryszon noted.

“It continues to be very challenging for anybody in that business.”

In fact, from rising regulation and cyber to emissions reporting, economic risks and ESG, the challenges for re/insurers continue to ramp up – and that’s before considering climate change. Much of the focus there has been on secondary perils and particularly wildfire, which is a signifant issue. However, Kryszon also noted the increasing impact of convective storms, which cost about $60bn in insured losses in 2023. 

“Convective storm is the silent balance sheet killer or earnings killer for many companies,” he said. 

Such trends argue for a dynamic approach to pricing, and considering severity and tail risks.

“You have to move away from a ground-up price to look at more modelling around severity, because you don’t know when that big one is going to hit, and you have to make sure you’re accounting for that in your pricing.”

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