NEWS
Property discipline to endure, with an eye on casualty
The industry is at an intersection, but this year-end renewal should be smoother than the last: Swiss Re.
The year-end renewal for property should be more orderly this year, after some unexpected changes and challenges last year, as capacity is available at the right price. More of a concern now, however, is casualty business, Monica Ningen, head of US P&C Reinsurance, Swiss Re, told APCIA Today.
“We’re at an interesting intersection after last year,” she said. “I’m not sure I would call the 1/1, 2023 renewal shocking, but some things were certainly unexpected. In the years before that, some had even questioned whether we would ever see another hard market or dislocation within the reinsurance space.
“There was a general feeling that ample capacity would flow in. But that is what happened on the property side last year.”
Ningen notes that the situation last year was exacerbated by the timing of Hurricane Ian. This year, changes have been made and the market is more organised, she said. “From a Swiss Re standpoint that capital is still available at the right price. Capital providers, including Swiss Re, are focused on getting the right price for the risk they’re taking.”
She expects the discipline around property to endure. It is important to remember the many factors that drove the market to this point, she noted, listing inflation, increased property-cat losses, geopolitical tensions and an energy crisis as some of the factors that ultimately triggered a correction in the market.
“Most of these things are still in place,” Ningen said. “There is a lot more uncertainty that everybody is navigating, so I think we’ll continue to see the property market maintain its discipline. I don’t expect it to decrease because we’ve continued to see losses increase.”
“There is a lot more uncertainty that everybody is navigating.”
Monica Ningen, Swiss Re
Avoiding big shifts
Ningen believes that changes to terms and conditions made last year will remain in place. “The shift happened. I don’t think those changes will be undone; they’ll be maintained.
“Many attachment points hadn’t changed for the last 10 or 15 years. We need to avoid those big jumps. We now need a conversation so that small changes happen each year to create a sustainable product, and we don’t see a massive shift like that again,” she said.
A similar correction has not yet occurred on the casualty side, she notes, but that could be coming. “It’s a space we’re continuing to watch; a lot of uncertainty is sitting there,” she said. “It has not become what you would describe as a hard market, but not a lot of carriers are putting new capital into the space.
“We continue to be pretty cautious. We make sure we’re partnering with our insurance carriers to see what rates they’re able to push through, what limits they’re deploying within that space.
“We are watching how are they navigating the impacts of medical and social inflation. We then redeploy our capacity to the structures and the companies with the strongest outlook,” she explained.
She highlights the difference between property and the casualty market dominated by quota share business, noting that prices on the primary side are continuing to go up, which does flow through to reinsurers.
“It flows through differently, but I wouldn’t describe it as a hard market. It’s a market where primary companies continue to push rate,” she said.
The area where lines continue to fall is D&O business, she said. “That is the one place we’ve seen rates start to go down.”
“We have to have adequate returns that are commensurate for the risk that’s taken.”
The need for sustainability
The recent changes in the market point to a wider issue, Ningen believes. “It leads to a conversation around the challenges we’re facing as an industry and for society.
“I don’t have a crystal ball, but we’re all aiming for a sustainable insurance market, and that likely means more conversations around certain things. Some states such as Florida and California are challenging for insurers to write profitable business in.
“We need to look at the culture around insurance and what needs correcting. Is it a hard market or is it a new normal? We need to look at increasing risk awareness and exposures, making sure that the price is sustainable for the long term. It is an important part of this conversation.
“For the insurance and reinsurance industry to be sustainable, we have to have adequate returns that are commensurate for the risk that’s taken.”
Worrying trends
Ningen highlights some particularly concerning trends around legal system abuse, litigation funding or “social” inflation, which is having a big impact on certain lines of business. She believes tort reform is need in a number of areas, but she also thinks that change only truly happens when insurance becomes unaffordable for certain lines.
“One example is long-haul trucking, a market that has been under stress for a while. I don’t think there will be any sort of reform until trucking companies can’t get insurance.
“It’s when goods don’t move in the US that consumers will start to feel it. On the casualty side, we’re watching this carefully,” she concluded.
Main image: Shutterstock / Bilanol
