Casualty characterised by uncertainty; US market remains a concern: Swiss Re

Every line of casualty business has its own specific dynamics, but there are key elements true for all lines.

Key points:
Casualty challenging overall
US markets biggest concern
EU directives change landscape

The casualty market, both in the US and Europe, can be characterised by one word at the moment: uncertainty. Yet there remains great nuance around the pricing and performance of different lines of business within it, driven by geography and the unique characteristics of each.

“There is not one single market in casualty; every line of business in every country has its own specific dynamics. Some are hard markets; some are softer; the picture is definitely a mixed bag.” 

So says Andrea Scascighini, chief underwriting officer, casualty, P&C Reinsurance, Swiss Re, who, speaking in the context of Monte Carlo, acknowledges that the underlying trends in casualty remain challenging. This means reinsurers must use all available information and  underwrite each on its merits.

“There is not one single market in casualty; every line of business in every country has its own specific dynamics. Some are hard markets; some are softer markets; the picture is definitely a mixed bag. That said, two key elements are true for all lines in casualty. First, uncertainty. There is uncertainty around the present, around future trends and, in certain segments, uncertainty around the past. The second common element is that underlying trends are, and remain, challenging, whether that is from legal system abuse, increased litigation or negative frequency trends.”

US challenges

He states that the US market is posing some very specific challenges for carriers. He recognises a divergence of opinions around how to get to an ultimate loss cost on many risks. This is partly because an uncertain macro environment, including geopolitical risks and inflation, can lead to varying views.

“If you look at statutory data and try to analyse it, there are a few very specific assumptions that can have a disproportionate impact on the quantification of the ultimate loss cost,” Scascighini said. 

“Equally, opinions will differ by carrier. Reinsurers’ portfolio strategies have been very deliberate in the last few years, so every carrier book will be different. Terms and conditions will vary. But at the end of the day, it’s the long-term nature of the business that matters – and the fact that the business is still developing in an uncertain environment.”

The legal environment also remains challenging in the US. He describes it as a big part of the underperformance of US liability business. “Its outcome means having a loss severity that is growing every year, but also a loss severity that is unpredictable. This is the real challenge. For me, the biggest development is that nobody is immune to legal system abuse today.”

He also notes that, in the US, some carriers continue to report adverse claims development. “It is probably more selective than a couple of years ago but those adverse developments span across underwriting years, even to the most recent years as well.”

He adds: “US liability is and remains a concern. It is a concern that might see improvement in the future in view of the tort reforms that are being rolled out in quite a few states. But today it is definitely at the top of my mind every day and factored into our underwriting assumptions. Swiss Re is being as proactive as we can.”

New risks in Europe

The European markets present a different challenge. He notes that every country and every product is different, but also identifies some overarching themes.

Ironically, the first he identifies is exposure to US risks. “This is a reality in European markets as well,” he notes.

But he also points to a raft of new European Union regulations introduced over the past couple of years, ranging from the Product Liability Directive and Collective Redress Directive to the EU AI Act.

“These are fundamental changes in the way liability and risk are viewed from an insurance perspective. That is what we are really watching closely and factoring into our underwriting assumptions: all this regulatory development that matters quite a lot for our products,” he said.

A related concern in Europe, though it spans the US as well, are per- and polyfluoroalkyl substances (PFAS) – man-made chemicals which are building up in the environment in many areas. This has been on his radar for years.

“For me, as a chief underwriting officer, PFAS tests the fundamentals of insurance. We need to underwrite the exposures before the claims emerge and shape portfolios that really build on this principle of diversification.”

But he adds that such principles are simply the building blocks of good underwriting. “We assess the risk itself. We look at the expected return, and the balance between the risk and return profile is what forms the basis for our decisions. We deploy our capacity where this balance is attractive, where the risk contributes positively to the construction of our portfolio, and where the treaty supports the client relationship we have in place.”

Andrea Scascighini is chief underwriting officer, casualty, P&C Reinsurance, Swiss Re.

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