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Property, liability reinsurance rates still headed upward


Most reinsurance rates will continue to rise at Jan. 1 renewals as losses and inflation put pressure on property reinsurers and concerns over rising court awards make liability rate hikes likely, too.

Some high layers of reinsurance coverage, though, which are less affected by frequent losses, may see flat renewals, experts say.

So-called social inflation is affecting various liability lines, and cyber liability reinsurance coverages could also face difficult placements, they said last week during interviews at the annual meeting of the American Property Casualty Insurance Association in Denver. The event, where insurers, reinsurers and brokers gather, is seen by many as the informal start of talks leading to Jan. 1 reinsurance renewals.

On the property side, lower attaching coverage layers and aggregate coverages – anything that is subject to frequent smaller and mid-size events –  have been hit by losses over the past five years, said Rob Bredahl, CEO of TigerRisk Partners LLC in Summit, New Jersey.

“They are going to be very difficult to place,” Mr. Bredahl said. Rate increases, though, are difficult to predict because attachment points may also rise as coverages are restructured.

Damages caused by the increased frequency and severity of these smaller and mid-sized events have resulted in higher loss activity in the last five years compared with the “prior several decades,” said Keith Wolfe, president of U.S. P&C at Swiss Reinsurance Ltd. in New York. “We think there’s been a step change, and this is why we’re seeing losses creep up.”

“Most of the rate adjustments in the property space have really been based on losses,” he said.

Mohit Pande, head of property underwriting, U.S. and Canada, at Swiss Re, said “Property seems to be on people’s minds quite a bit. The key theme has been the increase in catastrophe loss activity.”

Discussions around the scope and timing of wildfires also have evolved, Mr. Pande said. “There has been some tightening of language around the radius and hours limitations that are used to define a wildfire event,” he said.

Inflation has become an issue for property risks, with materials and construction costs rising.

 “We are seeing this manifest in much larger loss settlements for properties that have been damaged or destroyed,” Mr. Wolfe said.

“There’s been a huge spike in the cost of everything,” Mr. Bredahl said. In addition, higher labor costs are causing concern.

These pressures may not abate anytime soon, Mr. Wolfe said. “I don’t see any reason why it’s not at least another 12 to 24 months for us to be experiencing these supply chain disruptions, which ultimately feed into higher loss costs.”

Both loss activity and response to inflation will be key differentiators for cedents during renewals, along with variables such as underlying rate movements and perils exposed, said David Priebe, chairman of Guy Carpenter LLC in Norwalk, Connecticut,

The middle reinsurance layers, those with attachment points ranging from 25-year to 50-year return times, are up approximately 10%, Mr. Bredahl said. Higher attaching layers, which have not been hit by losses in recent years, should be roughly flat at January renewals, he said.

“If you look at what’s going on in the catastrophe bond world, which tends to include the higher attaching layers, there’s plenty of capacity, prices are attractive relative to the traditional market,” and a record volume of new issuance is expected by year’s end, Mr. Bredahl said.

Casualty and specialty reinsurance coverages are also expected to rise as the sector continues to see losses and underlying primary rate increases, sources said.

“What we’re seeing in the broader U.S casualty space is general liability has been impacted to a significant amount by social inflation. We continue to see the trend going up in terms of large jury awards,” Mr. Wolfe said, citing as examples heavy commercial trucking on the liability side and a recent $1 billion jury award out of Florida.

On Aug. 20, a Nassau County, Florida, jury awarded damages in a wrongful death matter in a crash involving a truck of more than $1 billion, after five days of testimony and four hours of deliberation in Melissa Dzion v. AJD Business Services and Kahkashan Carrier, according to local news reports. The award included a punitive damages award of $900 million.

“That’s a pretty big headline number that really starts to make us take pause as an industry,” Mr. Wolfe said.

Trends that have been driving primary pricing increases on the casualty side, including financial lines, have continued, he said.

Increased ransomware claims hitting cyber liability insurers have begun to affect reinsurance layers, Mr. Wolfe said.

“Cyber is expected to remain challenging at Jan. 1 in light of increased and more severe ransomware attacks,” Mr. Priebe said.

There have been “significant” shifts in pricing, product structuring and capacity allocations to address conditions in both the insurance and reinsurance segments, and loss development assumptions for cyber risk have been reviewed to reflect the effect of the current claims activity, he said.

Meanwhile, contract languages concerning COVID-19 exclusions have evolved to become more precise, sources said.

Following the onset of COVID-19, “there was heavy focus on communicable disease exclusions,” Mr. Priebe said. “Over the past 18 months, versions of the language with increased clarity have gained wide acceptance, leading to significantly improved negotiation times and more orderly placements.”