What happens to liability reinsurance renewals? | Insurance business America
AM Best indicates price shifts
reinsurance
By Kenneth Araullo
In the January reinsurance renewal season, reinsurers maintained adequate capacity for liability programs amid concerns about social inflation and the need for reserve strengthening, according to AM Best’s latest commentary.
The report, titled “Despite Increased Risks, Liability Reinsurance Renewals See Modest Pricing Changes,” highlights that reinsurers have maintained a disciplined approach to underwriting, particularly compared to more volatile property insurance. This discipline is also reflected in the stability of the binding points and terms and conditions, which are not expected to be relaxed in the near future.
While property catastrophe reinsurance experienced several rate increases due to the increasing frequency and severity of weather-related events, reinsurers were reluctant to increase capital allocation to these risks until they saw more evidence of rate adequacy.
This cautious stance contrasts with the dynamics seen in casualty reinsurance, where reinsurers are carefully balancing their portfolios in the face of challenges posed by long-term risks such as general and commercial auto liability.
The commentary notes that economic and social inflationary trends, fueled in part by third-party litigation funding and plaintiffs’ sophisticated legal tactics, are driving up verdicts and impacting lines such as commercial vehicle, general liability and managerial liability (D&O) insurance. affect.
These factors contribute to social inflation continuing to put upward pressure on loss costs and third-party litigation funding to provide high returns that are uncorrelated with other financial assets.
The commentary also noted the impact of social inflation on the insurance industry, particularly in sectors such as commercial vehicles where the claims experience remains challenging. Despite steady rate increases over the past decade, pricing is struggling to keep up with escalating claims trends, putting additional strain on reinsurance pricing.
The analysis also looks at worsening driving behavior since the start of the COVID-19 pandemic, including a higher number of traffic fatalities despite fewer miles driven, as well as increases in distracted and impaired driving. These trends have resulted in more serious injuries and legal claims and increased the severity of punitive damages awarded by sympathetic juries.
This environment has led to higher costs for excess of loss reinsurance for individual losses and presented challenges to the commercial vehicle sector, which recorded underwriting losses in 2022 similar to those of the 2016-2019 period, with results for the third quarter of 2023 showing a continued decline .
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2024-02-16 14:30:00
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