MONTE CARLO, Monaco – The reinsurance market is broadly stable following a decline or flattening of rates in many lines this year, but reinsurers remain wary of several sectors, including U.S. commercial liability risks.
During presentations at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, Monaco, this week, market executives said liability loss trends continue to worsen, though the property reinsurance sector is stable, and they continue to see opportunities in the cyber liability market.
Fitch Ratings Inc. said it had revised its outlook for the sector to neutral from improving, saying profitability should continue but that it peaked for reinsurers over the past two years.
“We expect the trends in the key credit drivers to remain broadly stable for the sector in the next 12 months,” said Manuel Arrive, Paris-based director in Fitch’s insurance group.
“We believe the cycle has most likely passed its peak, but the market conditions should remain broadly favorable and supportive of strong returns,” Mr. Arrive said.
Fitch forecasts an industry combined ratio of 88.2% for 2014 and 90.2% for 2025, which would be slightly deteriorating from 2023’s 87.3%.
The Rendez-Vous, where brokers, reinsurers and others meet annually to discuss market trends, traditionally marks the beginning of the Jan. 1 renewal season.
This year’s renewals negotiations could be difficult in some lines, said Thierry Léger, Paris-based CEO of Scor SE, noting U.S casualty reinsurance negotiations could prove challenging.
“We think U.S. casualty going to be a segment where we see significant, difficult discussion,” he said.
Mr. Léger cited a “lack of tort reform” and a “litigation industry” in the U.S. as driving up loss costs.
Fitch also identified U.S. casualty as a “hot spot.”
“We continue to see rising loss costs from social inflation, litigation finance trends and the so-called nuclear verdicts of losses of above $10 million. This has led to adverse reserve developments,” Mr. Arrive said.
Munich Reinsurance Co. is prepared to walk away from some U.S. liability business, said Thomas Blunck, chair of the reinsurance committee of the reinsurer’s board of management.
“We have no problem to give up volume if the terms and conditions are insufficient,” he said.
Swiss Re Ltd.’s U.S liability combined ratio is “not a pretty number,” Gianfranco Lot, chief underwriting officer, property/casualty reinsurance, for the reinsurer, said without giving specific figures. “It wasn’t a profitable book.”
Swiss Re has an appetite for casualty business outside the U.S., Mr. Lot said, “But in the U.S., Swiss Re continues to be very cautious around this line of business.”
The reinsurer expects a contraction in U.S. liability business because median primary limits being purchased by commercial policyholders have dropped.
The property reinsurance market remains stable, several executives said.
“If property remains favorable, and we think it will be in view of the exposure trends, in view of the need for our clients, for our volatility management, then we have no restrictions on our side to put our capital at risk and to support our clients,” said Mr. Blunck of Munich Re.
“The overall reinsurance market and the capacities should be good enough in order to cope with the demand,” Mr. Blunck said, adding, however, that “there is definitely not an excess of capital in the reinsurance market.”
Swiss Re’s Mr. Lot said demand for reinsurance is rising, driven mainly by increased property values and “urbanization.”
Hannover Re SE said in a statement: “The market in North America has now settled on an adequate level in short-tail lines. Property business continues to benefit from further increases in primary insurance premiums, while demand for insurance products remains strong.”
Reinsurers continue to see growth opportunities in cyber reinsurance.
The cyber market is “going to grow significantly over the next couple of years,” said Urs Baertschi, CEO of property/casualty reinsurance for Swiss Re.
Recent high-profile events have “raised awareness that cyber actually is a proper risk and needs proper insurance, and so we believe over the next couple of years, the compound annual growth rate will be significant double digits,” he said.
Cyber capacity, though, will be limited by risk aggregation threats, said Mr. Léger of Scor.
“In cyber, it’s completely different; everything is correlated,” he said, emphasizing the increasingly digital and connected nature of global business.
