Property and legal responsibility reinsurance charges proceed to rise – Enterprise Insurance

Most reinsurance rates will continue to rise with the January 1st renewal as losses and inflation put pressure on property reinsurers and concerns about rising court rulings make liability rate hikes likely.

However, some high reinsurance covers that are less affected by frequent claims could see flat renewals, according to experts.

So-called social inflation affects various liability lines, and cyber liability reinsurance could also face tough rankings, they said in interviews at the American Property Casualty Insurance Association's annual meeting in Denver last week. The event, where insurers, reinsurers and brokers meet, is seen by many as an informal start to the talks leading up to reinsurance renewal on January 1st.

On the property side, lower adherent cover layers and aggregate covers – anything subject to frequent small and medium-sized events – have seen losses over the past five years, said Rob Bredahl, CEO of TigerRisk Partners LLC in Summit, New Jersey.

"They will be very difficult to place," said Mr Bredahl. However, rate increases are difficult to predict as connection points can also increase as coverages are restructured.

Claims caused by the increasing frequency and severity of these small and medium-sized events resulted in higher claims activity in the past five years than in "previous decades," said Keith Wolfe, President of US P&C at Swiss Reinsurance Ltd New York. "We believe there has been a change of pace, and that's why we see the losses creep up."

"Most of the rate adjustments in real estate were really based on losses," he said.

Mohit Pande, Head of Property Underwriting USA and Canada at Swiss Re, said: “Real estate seems to be on people's minds. The key issue was the increase in disaster claims activity. "

Discussions about the size and timing of forest fires have also developed, Pandit said. "There has been some tightening of the radius and hourly constraints used to define a wildfire event," he said.

Inflation has become a real estate risk issue as material and construction costs rise.

"We see this in much larger claims statements for damaged or destroyed properties," said Wolfe.

"The costs for everything have increased enormously," said Mr. Bredahl. In addition, the higher labor costs are a cause for concern.

That pressure may not be easing off anytime soon, Wolfe said. "I see no reason why it doesn't take at least 12 to 24 months before we experience these interruptions in the supply chain that ultimately lead to higher loss costs."

Both losing activity and responding to inflation will be important differentiators for cedants during renewal, along with variables such as underlying rate movements and exposure to risk, said David Priebe, chairman of Guy Carpenter LLC in Norwalk, Connecticut.

The middle reinsurance strata with points of contact between 25 and 50 years of payback times have risen by around 10%, said Bredahl. Higher layers of fortification that have not suffered losses in recent years should be roughly flat when renewed in January, he said.

"If you look at what's going on in the catastrophe bond world, which tends to include the higher attachments, there is enough capacity, the prices are attractive compared to the traditional market," and a record volume of new issues is expected by the end of the year, said Herr Bredahl.

Liability and specialty reinsurance covers are also expected to rise as the sector continues to lose money and underlying primary rates rise, sources said.

“What we are seeing in the broader US liability arena is that general liability has been significantly affected by social inflation. We continue to see a rising trend in big jury awards, ”said Wolfe, citing heavy-duty vehicles on the liability side and a recent $ 1 billion jury award from Florida as examples.

On August 20, a jury in Nassau County, Florida awarded more than $ 1 billion in damages in an unlawful death in a truck after five days of testimony and four hours of counseling at Melissa Dzion against AJD Business Services and Kahkashan Carrier, according to local news reports. The award included punitive damages of $ 900 million.

"That's a pretty big headline number that really makes us pause as an industry," said Wolfe.

Trends that have driven primary price increases on the liability side, including the financials, have continued, he said.

Increased ransomware claims against cyber liability insurers have started to affect the reinsurance layers, Wolfe said.

"Cyber ​​is expected to remain a challenge on January 1st in view of the increasing and more serious ransomware attacks," said Priebe.

There have been "significant" shifts in pricing, product structuring and capacity allocation to accommodate conditions in both insurance and reinsurance, and claims history assumptions for cyber risk have been reviewed to reflect the impact of current claims activity, he said.

In the meantime, the languages ​​of the contract regarding COVID-19 exclusions have evolved to be more precise, sources said.

After the COVID-19 outbreak, "there has been a strong focus on the exclusion of communicable diseases," said Priebe. "In the last 18 months, language versions with increased clarity have found widespread acceptance, which has led to significantly improved negotiation times and more orderly placements."

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