Reinsurers Set To Push for Double-Digit US Casualty Price Hikes

Reinsurers are expected to seek double-digit increases in US casualty premiums during January 2025 renewals to address rising loss costs, Fitch Ratings reports. A key concern is adverse loss development in the US casualty sector, driven by social inflation, which remains a significant risk to the neutral global reinsurance outlook. 

Reinsurers believe that US casualty price increases earlier this year, which saw rates rise by up to 15 percent for loss-affected accounts and up to 10 percent for no-loss accounts, were insufficient. As a result, they are preparing for tough renewal negotiations with cedants. In addition to higher premiums, reinsurers are likely to push for reductions in coverage limits and quota-share commissions. 

Concerns over market pricing have led some reinsurers, including Munich Re and Swiss Re, to scale back their exposure to casualty business, limiting capacity in the most affected lines. At the same time, reinsurers are seeking more detailed information from cedants to refine risk selection. This has widened the supply-demand gap and added to the upward pressure on prices as cedant demand continues to grow. 

Fitch expects loss costs to keep rising in 2025, fueled by social inflation, legal system abuse, and frequent large verdicts, particularly those exceeding $10 million. Other factors include increasing attorney involvement in claims and the growth of litigation funding. Latent liability risks, such as those stemming from opioids, microplastics, and per- and polyfluoroalkyl substances, are also creating uncertainty for reinsurers. 

Tort reform in the United States, which could help to reverse the loss trend, is not a public policy priority. There is further concern that social inflation could spread to other countries with legal systems based on precedent, such as the United Kingdom, Canada, and Australia, although civil law countries like France and Germany are less vulnerable due to their judicial systems and damages caps. 

Several reinsurers have recently strengthened their US casualty reserves. Swiss Re added $650 million to its reserves in the first half of 2024, following a $2 billion increase in 2023. PartnerRe and Axis also reported significant reserve additions. Some of these moves are seen as pre-emptive, as reinsurers capitalize on favorable conditions in property reinsurance. 

Long-tail excess liability and umbrella policies from accident years 2015–2019 continue to experience adverse development, and there is concern that loss estimates for accident years 2021–2023 may be inadequate. Despite these challenges, Fitch does not expect reserve deficiencies to significantly affect reinsurers' capital, as most companies should be able to absorb reserve strengthening through earnings.