Double-Digit U.S. Casualty Reinsurance Price Hikes Forecast

While the property-catastrophe reinsurance market is in the midst of a moderate softening phase, which will continue in 2025, double-digit price hikes for U.S. casualty reinsurance business are likely during 1/1/2025 renewals, Fitch Ratings says.

“Adverse loss development trends in U.S. casualty business due to higher social inflation is a key risk to our ‘neutral’ global reinsurance sector outlook,” Fitch Ratings analysts said in a media statement Monday.

Fitch forecasts that in addition to price increases, limits and quota-share commissions on U.S. casualty reinsurance contracts will be lowered.

“We anticipate tough negotiations with cedents as reinsurers do not believe this year’s U.S. casualty price rises have been sufficient,” Fitch said, noting that more increases are needed to keep up with loss costs.

Fitch reported that at the mid-2024 renewals, rates increased by up to 15 percent for loss-affected accounts and up to 10 percent for no-loss accounts.

As for exposure and limits capacity, Fitch noted that reinsurer concerns over inadequate pricing have prompted them to prune both, calling out Munich and Swiss Re as two players that have significantly reduced their exposure.

“Reinsurers are also asking for more granular information from cedents as they tighten their risk selection,” Fitch said.

The Fitch statement also provides a short list of adverse reserve developments recently reported by reinsurers relating to U.S. casualty business.

Swiss Re added $650 million to its U.S. casualty reserves in first-half 2024, following a $2 billion addition in 2023.
PartnerRe also significantly strengthened its U.S. casualty reserves in first-half 2024
AXIS booked a $425 million reserve charge in fourth-quarter 2023.

Fitch believes recent reserve additions “have been partly out of necessity.” In some cases, however, the additions have been “pre-emptive and opportunistic,” in Fitch’s words. In other words, some reinsurers are taking advantage of a strong underwriting period for property reinsurance. In addition, reserve redundancies in workers compensation and property lines have greatly offset deficiencies in the most exposed lines, including general liability and commercial auto.

On an accident year basis, Fitch notes that while insurers and reinsurers have reported material incurred loss development on U.S. liability business from accident years 2015-2019, the later years are still in question. “[I]t is not clear whether U.S. casualty incurred-loss estimates for accident years 2021-2023 will be sufficient,” Fitch said, also noting that longer-tail excess liability and umbrella business could still experience even further adverse reserve developments on the earlier AY 2015-2019 periods.

Fitch’s overall conclusion on the impact of U.S. casualty reserve weaknesses on reinsurers’ financial strength is that weaknesses are not likely “to affect capital to the extent seen in the late 1990s and early 2000s, when Fitch took several negative rating actions on reinsurers.”

“Most reinsurers should be able to absorb the necessary reserve strengthening from their earnings, with little or no impact on capital,” Fitch said.

Meanwhile, cedents will see upward pricing pressure. In addition to reinsurers’ concerns, demand from cedents is increasing, leading to a widening supply and demand gap that also driving the pressure on prices.