Europe not immune from US casualty drivers but more stable 1.1 expected

A number of reinsurers at Baden-Baden this week have begun taking a position on European casualty treaty as they highlight social inflation concerns, but the consensus so far is that the 1.1 renewal on the Continent will be far more stable than the shift expected in a hardening US liability market.

US casualty was one of the dominant themes during last month’s Monte Carlo Rendez-Vous and the US conferences that followed.

Conversations have focused on concerns around deteriorating underwriting results from the years leading up to the start of the hard insurance market that went into overdrive in 2020, framed by the pervasive impact of social inflation.

The large limits that were put down before the dramatic shortening led by AIG, Lloyd’s and others are heavily exposed to an environment where losses are escalating, with full limits targeted for settlement by a plaintiff bar benefiting from litigation financing.

That has led to a very vocal response from reinsurers about the need to push rates up – both cede commissions on quota shares and pricing on excess of loss covers – and tighten terms and conditions.

The message appears to be that property cat has received full attention until now, and it has become an imperative to exert similar pressure on US casualty.

There is also a growing consensus that higher reinsurance costs will compound concerns on the underlying book to drive a rehardening in certain areas of US casualty insurance – notably excess umbrella business.

Exporting to Europe

The question is whether there is any direct or indirect contagion for the European casualty treaty renewals at 1.1 – which tend to be more heavily weighted to XoL placements and dynamics than the quota share-driven US market.

At the Guy Carpenter Baden-Baden Reinsurance Symposium on Sunday, a lot of the focus remained on the property renewal in Europe.

But there was commentary from at least one reinsurer that supported the suggestion that there is already a greater focus on the European casualty market and the potential for some of the issues in the US to be exported across the Atlantic.

Scor CEO Thierry Léger said: “We have started to build credibility in nat cat. The next port of call is social inflation and casualty. Social inflation is not just US, it is certainly in Europe and will lead into Asia.

“The impact of casualty is coming back to our lines of business. We have to show that we can deal with social inflation and that we have the level of preparedness for this type of risk to come and with this trust can be built for years.”

Speaking elsewhere at the Baden-Baden reinsurance event, executives from Hannover Re’s German subsidiary E&S Rück also highlighted concerns about the direction of travel on European casualty treaty business, especially in relation to social inflation and the health of reserves.

Jonas Krotzek, managing director for Germany, Austria, Switzerland and Italy, said that the company is seeing more of a need to increase rates because of loss inflation in its industrial and commercial business.

And E&S Rück CEO Michael Pickel said it was unclear at this stage what level of capacity clients will look to buy in relation to casualty limits.

“But certainly it will be our task to see how social inflation goes into the claims history and there has been recently some deterioration of loss situations, and this will certainly have an impact on our quotes for the continental European business,” he suggested.

Other reinsurers have been less vocal on a need to push for improvement on European casualty treaties, however.

Consistent capacity

Speaking to The Insurer TV, Swiss Re managing director and head of Northern, Central and Eastern Europe Thorsten Steinmann said the group was also looking to maintain “consistent capacity” to European casualty clients, where he also expected demand to increase.

“There are a lot of casualty lines, especially in EMEA, where we do have appetite, particularly general liability treaties. We also like well-priced motor business.

“We're a committed player in casualty. This is a stable line of business which deserves stable reinsurance capacity, and we aim to provide consistent capacity to our clients.”

The comments come against the backdrop of Swiss Re continuing to cut back on US casualty exposure after taking heavy losses on the business, which may be close to $2bn a year according to KBW analysts, who also warned of potential reserve strengthening.

Speaking as the Baden-Baden meeting got underway in Germany, a senior reinsurance broking executive downplayed the suggestion that the European and broader international casualty treaty renewal could be impacted by the shift in conditions in the US.

“There are no issues on international casualty at all. It's still a property conversation. There’s nothing there,” they suggested.

The commentary as the market gears up for 1 January 2024 comes after what was a largely stable market at this year’s key 1.1 renewal.

In its post-mortem in the days following the renewal, Gallagher Re described a casualty treaty market generally that was “calmer and more rational than other parts of the business”, with renewals completed at terms seen as “tough but fair by most buyers”.

In international casualty, the firm noted that the renewal is largely around XoL deals, with little evidence of commission discussions in relation to quota shares. The intermediary reported international casualty was flat to up 10 percent for loss-free XoL, rising to 10-30 percent for accounts with losses.

International motor liability was in the same region for loss-free XoL, and 10-15 percent up with losses.

France general third-party liability was flat to 5 percent up for loss-free accounts and 10-30 percent up for those with losses, with motor liability up 15 percent where there were no losses and 15-30 percent up where there were claims.

Meanwhile, Aon in its post-renewals report said of international casualty: “While the general insurance dynamic was the same as for US casualty, treaty outcomes were slightly more favorable for buyers. Quota share commissions renewed flat or slightly up, while excess of loss rates were broadly ranging from single-digit risk-adjusted rate change down to single-digit increase.”

The broker said that the exceptions to the rule were poorly performing portfolios or non-standard reinsurance structures.