Significant US Casualty Reinsurance Rate Hikes Anticipated in 2025

Reinsurers are expected to pursue double-digit increases in US casualty premium rates during January 2025 renewals, according to Fitch Ratings. Fitch said the pressure to raise rates is driven by escalating loss costs, particularly due to social inflation, which poses a key risk to the global reinsurance sector. 

Fitch found that while rates for loss-affected accounts rose by up to 15 percent at the mid-2024 renewals and up to 10 percent for no-loss accounts, reinsurers remain concerned these increases have not been sufficient. As a result, Fitch anticipates reinsurers will push for higher rates, reduced cover limits, and lower quota-share commissions in the upcoming renewals. 

Several major reinsurers, including Munich Re and Swiss Re, have cut their exposure in the most affected lines of business as concerns about inadequate market pricing grow, Fitch said. Reinsurers are tightening their risk selection and demanding more detailed information from cedants to better assess risks. At the same time, cedants are facing rising demand, further widening the supply and demand gap and adding to the upward pressure on pricing, according to Fitch. 

Fitch expects social inflation—an increase in loss costs due to litigation and higher jury awards—to continue driving up loss costs in 2025. According to Fitch, the growing number of legal verdicts exceeding $10 million, more claims involving attorneys, and the expanding litigation funding industry all contribute to this trend. Emerging latent liability risks, including those related to opioids, microplastics, and per- and polyfluoroalkyl substances (PFAS), present further uncertainty for reinsurers, Fitch said. 

Despite these challenges, US tort reform, which could help mitigate the trend of rising losses, is not a near-term policy priority, Fitch noted. Fitch also warned that social inflation could spread beyond the United States to other common law countries, such as the United Kingdom, Canada, and Australia, though countries with civil law systems, like France and Germany, are less at risk due to judicial oversight and damages caps. 

Several reinsurers, including Swiss Re and PartnerRe, have recently reported adverse reserve developments. Fitch reported that Swiss Re added $650 million to its US casualty reserves in the first half of 2024, following a $2 billion increase in 2023. PartnerRe also significantly increased its reserves, while Axis booked a $425 million reserve charge in late 2023. 

Fitch observed that while some reserve strengthening is necessary, it may also be opportunistic, as reinsurers take advantage of a strong underwriting period for property reinsurance. Reserve redundancies in property and workers compensation lines have helped offset deficiencies in more exposed sectors, such as general liability and commercial auto, Fitch said. 

Fitch expects the US casualty sector to face further adverse reserve developments, particularly for accident years 2015–2019, as well as longer-tail liability business. It is also unclear whether the incurred-loss estimates for 2021–2023 will prove sufficient. However, Fitch concluded that while US casualty reserve issues are likely to persist through 2025, the impact on reinsurers' capital levels is not expected to be significant, unlike the challenges faced in the late 1990s and early 2000s.