Reinsurers seek double-digit rate hikes for US casualty in 2025 renewals

Reinsurers are expected to seek double-digit increases in US casualty premium rates during the January 2025 renewals, according to Fitch Ratings.

This move aims to address rising loss costs, driven in part by social inflation, a key factor contributing to adverse loss development trends in the US casualty business. Fitch noted these trends as a major risk to the global reinsurance sector’s neutral outlook.

Negotiations with cedants are anticipated to be challenging, as reinsurers argue that the rate hikes seen in 2024 have not been sufficient. Rates for loss-affected accounts increased by up to 15% during mid-2024 renewals, while those for no-loss accounts rose by up to 10%.

In January 2025, reinsurers are expected to push for further rate hikes and reduce cover limits and quota-share commissions.

Concerns over low market prices have led many reinsurers to reduce exposure and limit capacity in lines most affected by adverse loss development. Munich Re and Swiss Re, in particular, have scaled back their US casualty exposure. Reinsurers are also requiring more detailed data from cedants, tightening their risk selection criteria.

Meanwhile, demand from cedants continues to rise, contributing to a growing gap between supply and demand, which is expected to further drive pricing upward.

Loss costs are projected to increase further in 2025, exacerbated by social inflation and litigation trends within the US legal system. Factors such as more frequent verdicts exceeding $10 million, higher attorney involvement in claims, and the growth of litigation funding are contributing to this trend.

Emerging liability risks, including those linked to opioids, microplastics, and synthetic chemicals like PFAS, also add uncertainty for reinsurers.

Tort reform in the US, which could potentially curb the rising loss trend, does not appear to be a public policy priority in the near future. There is also the possibility that social inflation could spread beyond the US to other common law jurisdictions, such as the UK, Canada, and Australia.

In contrast, civil law countries like France and Germany may face less risk due to judicial involvement and caps on damages.

Adverse reserve developments

Several reinsurers have recently reported adverse reserve developments. Swiss Re added $650 million to its US casualty reserves in the first half of 2024, following a $2 billion increase in 2023. PartnerRe also significantly strengthened its US casualty reserves during the same period, and Axis booked a $425 million reserve charge in the fourth quarter of 2023.

Fitch suggests that some of these reserve increases may be necessary, while others could be pre-emptive, with reinsurers leveraging strong property reinsurance underwriting periods. Reserve redundancies in workers’ compensation and property lines have helped offset shortfalls in general liability and commercial auto lines.

The US liability business from accident years 2015-2019 has seen significant incurred-loss development, and long-tail excess liability and umbrella business could face further reserve challenges.

There are also concerns about whether incurred-loss estimates for accident years 2021-2023 will be adequate. Carriers have adopted more conservative loss ratios and are holding higher reserves per claim.

While the US casualty reserve situation is expected to remain unfavorable through 2025, the impact will likely vary across individual companies. Fitch does not expect reserve weaknesses to significantly affect capital levels as they did in the late 1990s and early 2000s.

Most reinsurers are anticipated to absorb the necessary reserve strengthening through earnings, with limited or no impact on capital levels.

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