Reinsurers will push for double-digit increases in U.S. casualty premium rates when insurance policies come up for renewal in January 2025 to keep up with higher loss costs.
According to Fitch Ratings report, adverse loss development trends in U.S. casualty insurance business due to higher social inflation is a key risk to our ‘neutral’ global reinsurance sector outlook.
We anticipate tough negotiations with cedants as reinsurers do not believe this year’s U.S. casualty price rises have been sufficient.
At the mid-2024 renewals, rates increased by up to 15% for loss-affected accounts and up to 10% for those without losses. Fitch anticipate further increases in January 2025, along with reductions in cover limits and quota-share commissions.
U.S. P&C insurance industry achieved best underwriting performance
The U.S. property and casualty insurance industry achieved its best underwriting performance in over 15 years in 2024. After 2 years of weak results, the industry has turned a corner, according to Swiss Re Insitute Report about US Property & Casualty outlook.
Strong premium growth and slowing claims cost inflation contributed to a combined ratio of 94%. Higher investment yields also provided a boost.
The P&C insurance industry’s return on equity (ROE) reached 14%, with full-year forecasts projecting an ROE of 9.5% in 2024 and 10% in 2025, along with premium growth of 8% and 5%, respectively.
Personal lines continue to drive growth and profitability improvements, while competition is reemerging in personal auto. However, growth in commercial lines, including property, is slowing (see TOP 100 Property & Casualty Insurance Companies in the U.S. in 2024).
TOP 10 Largest P&C Insurers in the U.S.
| № | Insurance Company / Group | NPW, $ mn | Change, % |
| 1 | State Farm Group | 92,601 | 19.1% |
| 2 | Berkshire Hathaway Ins | 77,192 | 4.9% |
| 3 | Progressive Ins Group | 61,494 | 20.4% |
| 4 | Allstate Ins Group | 47,398 | 11.6% |
| 5 | Liberty Mutual Ins Cos | 40,474 | 4.6% |
| 6 | Travelers Group | 37,968 | 14.0% |
| 7 | USAA Group | 31,096 | 18.7% |
| 8 | Chubb INA Group | 25,931 | 8.6% |
| 9 | Nationwide P&C Group | 19,117 | -1.7% |
| 10 | Farmers Ins Group | 18,306 | 4.6% |
Reinsurers concerned that reinsurance market prices are too low
Reinsurers are concerned that market prices are too low, prompting them to reduce their exposure and limit capacity in the lines of business most impacted by adverse loss development.
Munich Re and Swiss Re, in particular, have significantly decreased their exposure. Reinsurers are also requesting more detailed information from cedants as they tighten their risk selection.
Meanwhile, demand from cedants is increasing, widening the gap between supply and demand and adding upward pressure on pricing.
Geopolitically, worldwide tensions are not easing, and the U.S. elections this year could have an effect. The increase in the underlying underwriting margin is driven by the meaningful improvement in underlying combined ratio. The underlying underwriting margin increased from 2.7% a year ago to 3.9%.
Mid-year reinsurance renewals have further consolidated the positive trends at 1/1 and 4/1, setting the stage for a more competitive reinsurance market in 2025.
Reinsurers price to book value ratios are reaching a peak, prompting speculation about mergers and acquisitions activity. There isn’t a strong indication of M&A, given the interest rate cycle and the relative cost of capital for insurers versus other industries as well as organic growth opportunities.
A strong focus on reinsurers’ profit margins
A strong focus on profit margins experienced over the recent past, which is expected to be sustainable in the short to medium term, has been the main driver of the AM Best’s positive outlook on the worldwide reinsurance market.
U.S. tort reform, which could help reverse the increasing loss trend, does not appear to be a public policy priority in the near term.
There is also a risk that social inflation could expand beyond the U.S. to common law countries like the UK, Canada, and Australia, where tort law is based on precedent. Countries governed by civil law, such as France and Germany, are less at risk due to the involvement of judges and caps on damages (see Global Reinsurance Capital & Catastrophe Bond Market Dynamics).
TOP 10 World’s Largest Reinsurance Groups
| № | Reinsurers | Life & Non-Life Re GWP, mn $ | Life & Non-Life Re NWP, mn $ |
| 1 | Munich Re | $51,331 | $48,550 |
| 2 | Swiss Re | $39,749 | $37,302 |
| 3 | Hannover Re | $35,528 | $29,672 |
| 4 | Canada Life Re | $23,414 | $23,414 |
| 5 | Berkshire Hathaway | $22,147 | $22,147 |
| 6 | SCOR | $21,068 | $17,055 |
| 7 | Lloyd’s | $18,533 | $14,162 |
| 8 | China Re | $16,865 | $15,395 |
| 9 | Reinsurance Group of America | $13,823 | $13,052 |
| 10 | Everest Re | $9,316 | $8,983 |
More frequent verdicts exceeding payouts of $10 mn, a higher proportion of claims involving attorneys, and the evolution of the litigation funding industry will contribute to this trend.
We expect loss costs to continue rising in 2025 due to social inflation and abuse of the U.S. legal system.
Latent liability risks from opioids, microplastics, and synthetic chemical substances known as PFAS pose considerable challenges and uncertainty for casualty reinsurers.
Reinsurers have recently reported adverse reserve developments
Several reinsurers have recently reported adverse reserve developments. Swiss Re added $650 mn to its U.S. casualty reserves in the first half of 2024, following a USD2 billion addition in 2023.
PartnerRe also significantly strengthened its U.S. casualty reserves in the same period, and Axis booked a USD425 million reserve charge in the fourth quarter of 2023.
Fitch believe recent reserve additions have been partly out of necessity, but in some cases also pre-emptive and opportunistic, with reinsurers taking advantage of a strong underwriting period for property reinsurance.
Reserve redundancies in workers’ compensation and property lines have greatly offset deficiencies in the most exposed lines, including general liability and commercial auto.
U.S. liability insurance had incurred-loss development
U.S. liability insurance business from accident years 2015-2019 has had material incurred-loss development since inception. Longer-tail excess liability and umbrella business could also face further adverse reserve developments from these underwriting periods.
More importantly, it is not clear whether U.S. casualty incurred-loss estimates for accident years 2021-2023 will be sufficient.
Insurers have been posting more conservative initial loss ratios and higher incurred-but-not-reported losses as a proportion of incurred losses, and holding significantly higher loss reserves per claim.
While the sector’s U.S. casualty reserve experience is likely to remain unfavourable through 2025, individual company results could vary widely.
We do not expect reserve weaknesses to affect capital to the extent seen in the late 1990s and early 2000s, when Fitch took several negative rating actions on reinsurers.
Most reinsurers should be able to absorb the necessary reserve strengthening from their earnings, with little or no impact on capital.
FAQ
Reinsurers plan to push for double-digit rate increases due to higher loss costs, driven by social inflation and adverse loss trends in the U.S. casualty insurance market.
The industry achieved its best underwriting performance in over 15 years, with a combined ratio of 94%, driven by strong premium growth and slowing claims cost inflation.
Rates increased by up to 15% for loss-affected accounts and 10% for those without losses. Further increases are expected in January 2025.
Reinsurers believe market prices are too low, prompting them to reduce exposure and limit capacity in lines affected by adverse loss development.
Social inflation, which includes larger legal settlements and increased attorney involvement, is raising loss costs, leading to higher premiums and reserve adjustments.
Latent liability risks from opioids, microplastics, and synthetic chemicals, along with social inflation, pose significant challenges for reinsurers.
Several reinsurers have strengthened their U.S. casualty reserves, with Swiss Re, PartnerRe, and Axis reporting significant reserve additions in response to higher loss costs.
Loss reserves are expected to remain unfavorable, but most reinsurers should be able to absorb necessary reserve strengthening without major impacts on capital.
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AUTHORS: Manuel Arrivé, CFA – Director, Insurance at Fitch Ratings Ireland, Brian Schneider, CPA, CPCU, ARe – Senior Director, Insurance at Fitch Ratings, David Prowse – Senior Director, Fitch Wire
