Re/insurers are implementing improving tech tools to identify emerging future casualty cat perils: KBW

Following meetings with executives at the recently held 2024 Rendez-Vous de Septembre (RVS) in Monte Carlo, KBW has reported that re/insurers are increasingly implementing steadily improving technological tools to identify emerging or future casualty catastrophe perils.

Analysts noted that associated insured loss estimates remain very high.

As an example, Praedicat, the casualty insurance analytics provider, calculates expected PFAS-related costs of $80 billion with a 1% PML of $200-225 billion, however these losses will ultimately be spread across both insurance and non-insurance companies and acknowledged over many years.

“We believe most casualty (re)insurers will steadily accumulate IBNR for these exposures, keeping us mostly unworried about suddenly erupting enormous unanticipated and unreserved losses emerging,” KBW said.

If you recall, Praedicat was recently acquired by global rating agency Moody’s Corporation.

Interestingly, KBW explained that throughout the 2024 RVS event, they heard differing opinions about whether already accelerating US casualty rate increases imply rate adequacy.

“Generalizing somewhat simplistically, North Americans are a little more optimistic about the potential to generate good returns than Europeans, and primary insurers are a little more optimistic than reinsurers (which of course aligns well with their respective roles at a reinsurance-focused conference and also reflects potential adverse selection since primary insurers will naturally try to retain as much of their best casualty gross written premium as possible). Still, even the most skeptical reinsurers ascribed these variances to legitimate differences of opinion rather than to reckless underwriting,” the firm added.

In addition, analysts pointed out that social inflation concerns are mostly centered on the US, in light of its unique litigation environment, however a couple of reinsurers reported issues in Australia, and one also observed directionally similar trends in the UK and the Netherlands.

According to KBW, reinsurers remain comfortable with most non-US casualty lines’ profitability, other than German motor.

Switching attention to social inflation defences, analysts noted that nobody they met at this year’s RVS is anticipating any sort of federal tort reform in the foreseeable future.

However, a number of executives suggested that individual states will eventually respond as rapidly rising litigation costs impact individual voters through higher consumer costs and/or job losses.

“We think that process will take far longer than Florida’s reforms that impacted voters directly in the form of tremendously expensive homeowners costs. In the interim, the industry’s responses will probably comprise reduced underwriting appetite for U.S. casualty lines, tighter underwriting standards on acceptable classes, more – and more explicit – coverage exclusions, efforts to settle directly with claimants by pointing out how much of individual gross recoveries go to attorneys, ‘better’ – and presumably more expensive – legal defense representation, and declining ceding commissions on proportional casualty reinsurance purchases that constitute the significant majority of U.S. casualty reinsurance premiums,” analysts said.

Lastly, KBW said that re/insurers are increasingly using AI tools to optimise their responses to particular plaintiffs’ attorneys and jurisdictions.

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