The casualty reinsurance market is firming up, due to US legal trends and inflation, said Marcus Winter, president and CEO of North American P&C reinsurance at Munich Re.
Winter spoke with GR about the state of the market, and was keen to discuss the casualty outlook, despite the heavy focus on property catastrophe business, perceived as the usual driver of the reinsurance market cycle.
He said that US loss emergence coming from the US is much higher than had been predicted by actuaries and through models. This, he said, is one of the legacies of the Covid pandemic.
“The general wisdom,” Winter explained, “is that the years 2014 to 2019 were particularly bad in the US, and much worse than has been predicted. And the court closures we had with Covid and with the slower legal proceedings in large parts of the country mean that these loss trends only started to emerge last year.”
He went on: “All insurance companies have an internal benchmark of what they say is a large loss on the casualty side. And virtually all of them say that they claims are higher than anticipated. It’s something that we’re seeing on the reinsurance side as well.
“The big discussion so far this year has been around not only how the casualty business has been impacted by inflation, but also how heavily it’s been impacted by the legal process.”
Winter explained that shifting legal trends can only be properly assessed retrospectively. The problem, he suggested, is that a shift in those trends is not easily captured on the pricing side, even if reinsurers, such as Munich Re, attempt to factor it in.
Looking ahead, Winter said he saw increasing difficulties ahead for the casualty market.
“In 2024, we see more and more difficulty for the market to get casualty business placed within the reinsurance business. Casualty reinsurance is firming up,” he said.
Winter added: “I don’t need to predict what the market is going to do. As a company, we respond to what we see in the marketplace. What we see now is that casualty is much more difficult to place, both the risk and the proportional risk.
“The proportional commissions will come down and the clients that can’t place risk covers as easy anymore, they will want to buy more proportional. Companies want to retain a maximum exposure per risk. If they can’t cut it on the non-proportional side, then they’ll expand the proportional.”