Casualty remains tough but pockets of opportunity will emerge

The casualty market in the US remains competitive for reinsurers, with rates still very soft in several lines of business and loss trends increasing. But there remain pockets of opportunity and rate decreases will likely slow in the aftermath of the recent hurricane losses.

That is the view of Jennifer Stevens, senior vice president, casualty, Swiss Re, who told PCI Today that while it remains a tough market for the reinsurer to navigate, she remains optimistic that change is on the horizon.

“It is no secret that we have been in a soft market for some 10 years—it is an environment we are all trying to handle,” she said.

“It has not been helped by the prolonged low interest environment that has also made investment returns hard to come by. On top of that we are seeing increases in loss trends in some areas.”

Stevens said this phenomenon first emerged in the auto business. Carriers that have this as a significant part of their portfolios have been trying to understand the driving forces behind this so they can react.

“We have seen increases in the frequency and severity of claims and we are trying to understand that. The concern is that this also starts to occur in other areas of liability business,” she explained.

“We are monitoring that carefully so we can stay on top of pricing. It is in everyone’s interests to have a healthy and sustainable market.”

A trend highlighted recently is inflation in medical expenses claims. Overall, medical expenditures are rising compared to prior years. This is a possible signal of rising medical inflation which drives bodily injury claims costs upward.

“We are watching that area carefully,” she said.

Another challenge is the growing propensity of individuals to sue as American society becomes more litigious. “We are watching the implications of that carefully,” she said.

The landscape offers reinsurers opportunities as well as challenges, Stevens said. She believes the high losses from the recent hurricanes will have a knock-on effect on casualty lines and rate decreases should at least slow in the aftermath of the losses.

“With the exception of commercial auto, all property-casualty lines have been declining for the past seven years,” she said.

“Following the storms, the industry is seeking rate increases, certainly on the property side. It is difficult to predict what will happen but we think the rate of decline will slow at least for general liability and umbrella policies.”

The other influencing factor on liability rates will be the strength of reserves.

“Publicly available data suggest these are not as strong as they were a few years ago; reserve releases have slowed and that could be a key signal that the industry will be unable to sustain further decreases. But it is very difficult to predict,” Stevens said.

Stevens does see some areas of opportunity: structural changes in the economy will unveil new requirements for risk transfer. Cyber risk and supply chain risk are examples of this, and more areas will emerge.

“The landscape is changing and a protection gap will emerge as society embraces new technologies,” she said, giving the advent of autonomous vehicles as one example of this.

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