Swiss Re’s Jones: Casualty uncertainty brings rate adequacy into question

It is not clear casualty insurance rate increases are keeping pace with elevated loss trends, according to Swiss Re’s head of casualty underwriting for North America Brian Jones, who notes his company is seeing “selective opportunities” to grow in this area as a reinsurer. 

Brian Jones – Swiss Re

In an interview with The Insurer, Jones said he anticipates rates will continue to increase in the casualty insurance market. 

“We expect clients are going to continue to get rate but we do see some evidence that the increases that they’ve been getting these last 12, 18 months are tapering off somewhat,” he said.

Jones, who assumed the role of head of casualty underwriting for North America at Swiss Re earlier this year, identified “a certain amount of rate fatigue” in the primary markets after a period of increases.

The executive said that even with the rate increases that have been achieved, a question for the market is whether rates are sufficient to cover loss development. He identified commercial auto and umbrella as two of the most challenging areas of the casualty market. 

Swiss Re’s Brian Jones on the rate v loss cost debate

“There’s still quite a lot of uncertainty in the market and I think that’s going to continue into 2022,” he said. “There is so much uncertainty out there that it makes us just worry, honestly, that the market may not be keeping up with these elevated severity trends.”

The executive explained that while reported results for 2020 and 2021 have been good, it is not clear how losses will evolve from here.

There was a drop in reported claims last year as the result of Covid-related factors such as reduced economic activity, closed courts, fewer workplace accidents and a drop-off in driving.

However, social inflation has been a big theme for the casualty market in recent years. Jones said that Swiss Re’s view is that it is a phenomenon that is here to stay. 

“The hypothesis is there are lots of underlying drivers, and virtually all of them are out of our control and almost all are really things that are ailing and troubling the society at large,” he said.

Clients retaining more risk

Addressing reinsurance specifically, Jones suggested that the abundant capital will have an impact in casualty.

“When you have moments like we’re in presently with so much capacity, this does not favour reinsurers. That’s as clear as can be. We do see in part because clients are getting a lot of rate and they like the business they’re writing, they’re actually retaining more of the risk. So their cessions on good portfolios are often being reduced because they want to keep the value of it themselves.”

Insurers may be in a hard market for casualty, but reinsurers are not, says Jones

Jones also noted an upwards push on ceding commissions, which is making life tougher for reinsurers.

“If you go back to 2012, where there was actually a pretty hard market both for primary carriers and also reinsurers, I think the average ceding commission may have been in the mid-20s. Now you’re looking at the upper 20s and well into the mid-30s,” he said. 

Q2 2021 YoY rate change by product – US casualty risk management accounts

However, Swiss Re does see opportunity in the casualty space.

“In terms of growth, we see ourselves pursuing very selective opportunities,” said Jones. “We don’t think it’s a hard market for reinsurers, not at all. And so we’re being pretty circumspect and pretty strict when it comes to risk appetite and what fits inside of that for us and what does not.”

Jones said Swiss Re sees some opportunities in the regional and national segment, with portfolios being able to be written more to the market than to the individual portfolios.

Swiss Re is also interested in bespoke deals with individual clients, where in addition to capacity it can add factors such as thought leadership for better terms on the placement. 

Lastly, the reinsurer is doing a lot of work in its solutions areas where, for example, it can bring data analytics or automotive solutions to clients.

“We do have these traditional casualty offerings, but for the right clients we’re able to add quite a bit more to the mix and we think that’s going to help us find good opportunities and grow into the future,” Jones said.