Reinsurance outlook at “neutral”; The US will push for a double-digit death toll

Fitch Ratings said reinsurers are likely to push for double-digit increases in the U.S. accident rate during January renewals to keep pace with loss trends due to welfare inflation.

In a new report, the rating agency changed its outlook on the global reinsurance sector to “neutral” from “improve.”

In addition to the rate hikes, which began at mid-year renewals with increases of 15 percent for loss-making accounts and 10 percent for non-loss accounts, Fitch said it expects lower limits and quota fees.

“Reinsurers’ concerns that market prices are too low are leading them to reduce exposure and limit capacity in lines of business most affected by negative loss developments,” Fitch said. “Munich and Swiss Re in particular have significantly reduced their exposure. Reinsurers are also demanding more detailed information from cedants as they tighten their risk selection. Meanwhile, demand from sellers is increasing, leading to a widening of the supply-demand gap and adding to the upward pressure on prices.”

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Fitch said Swiss Re was one of several reinsurers to add to US casualty reserves, along with PartnerRe and Axis. Reserve consolidation was done simultaneously out of necessity and preemption, taking advantage of strong property reinsurance results. The years 2015-2019 have seen an evolution of incurred losses, and longer injury lines may face further adverse evolution of reserves. Fitch added.

“More importantly, it is unclear whether US casualty loss estimates for the 2021-2023 casualty years will be sufficient,” Fitch said.

Loss costs will continue to rise due to social inflation and litigation abuse in the US, with “considerable challenges” for casualty reinsurers due to liability from opioids and PFAS, known as the “forever chemicals”. However, Fitch said it expects reserve weaknesses to hurt capital to the extent seen in the late 1990s and early 2000s, when the rating agency was forced to take negative rating action on reinsurers.

TOPICS
Trends USA Accident reinsurance