Ample capacity remains available for International Casualty, as many carriers look to diversify their heavily cat-exposed property and US casualty portfolios by growing in other lines and territories. Renewals throughout 2024 were generally stable, with sufficient support for those programmes with perceived price adequacy.
The largest rate increases and capacity withdrawals have been applied to cedants with significant US exposure, as reinsurers remain on high alert following an increasing number of nuclear verdicts that have impacted international reinsurance placements.
To date, high levels of social inflation remain primarily a US problem, but some carriers have expressed concerns of social inflationary signs emerging in the EU. These largely stem from changes in the legal landscape, such as collective redress or representative actions, which have garnered increased attention from reinsurers.
However, any impact on pricing has thus far been mitigated by a high supply of capacity and the absence of discernible evidence of an increase in the frequency or severity of representative actions adversely affecting treaties.
Key Themes to Note in International Casualty Ahead of 1.1
- The outlook for the US Casualty market presents a concerning scenario, as loss trends are worsening without any relief anticipated through tort reform. Additionally, the impact of prior-year development is expected to persist across all accident years since 2014/15, despite significant cumulative rate increases in recent years. Consequently, the reinsurance market remains very alert, demanding buyers demonstrate proactivity on a portfolio level regarding US premises, exports, and excess auto covers.
- Exposure to PFAS continues to be a topic for investigation by reinsurers as litigation has expanded beyond tier one manufacturing suits globally. Currently, there are numerous cases across international territories, with a particular focus on public entities and chemical companies regarding water pollution. Generally, reinsurance exclusions are avoidable where exposures are limited or where related insurance underwriting guidelines and mitigation measures have been transparently communicated and are deemed sufficient.
- The impact of EU-wide collective redress mechanisms on loss trends has raised concerns. No noticeable changes have been observed so far, though it is important to note that implementation of these mechanisms, as brought about by the Representative Actions Directive, is relatively recent and not yet completed in all member states. The specifics of the new legislation vary across countries, but a notable distinction from the US system of class actions is the prohibition of punitive damages and a preference for judicial over jury verdicts. Furthermore, the utilisation of litigation funding in the EU remains relatively restricted. While it is anticipated to increase in the future, the EU authorities have conveyed their vigilance on this matter and indicated their readiness to introduce additional regulations if deemed necessary.
- A new EU Product Liability Directive (PLD) has now been approved after extensive declarations and negotiations, in conjunction with the introduction of a newly created AI Act. This development has sparked significant controversy in Europe due to a number of groundbreaking changes, including the recognition of software as a product and the implementation of measures to ease the burden of proof. Member States now have a period of 24 months to transpose the PLD into their national laws. As a result of this directive, economic operators face increased liability, explicitly including the use of AI systems, so companies that were previously not considered potential defendants will now be held accountable. Market participants are particularly concerned about the new presumption rules regarding product defects and causality, as well as the extensive disclosure obligations imposed on defendants. While it is too early to determine the impact on treaties, the topic is being closely monitored by reinsurers, especially in relation to the anticipated rise of collective redress in Europe.
- Greenwashing has become a prominent concern in recent years. It refers to the misleading marketing or promotion of products, services, or organisations as environmentally friendly or sustainable, despite not meeting the requisite standards. Investors, consumers, and employees are increasingly resorting to litigation when companies fail to live up to their ESG claims. Compliance with ESG requirements poses challenges due to the ever-evolving metrics and technology, thereby heightening the risk of miscalculation and subsequent legal action. Notably, we have observed that greenwashing actions have yielded greater success than climate change litigation, leading to recoveries under D&O policies. Claims activity in the EU might experience a downward trend as the EU plans to implement several measures, including a ban on generic environmental claims without proof and claims of a product’s neutral or positive impact on the environment through emissions offsetting.
- The number of climate change litigation cases is on the rise as individuals, organisations, or governments seek to hold responsible parties accountable and pursue compensation for damages caused by climate change. Climate change litigation also aims to enforce environmental regulations and compel stronger action to mitigate climate change and reduce greenhouse gas emissions. While climate change litigation faces some challenges, such as establishing causation and attributing responsibility, it has gained momentum in recent years, with courts acknowledging the legal grounds for such claims and some cases resulting in substantial settlements or court rulings. However, the impact on reinsurance in the international sector has been negligible thus far.
- Discount rates are likely to fall as interest rates reduce, and this will impact views on treaty pricing as net present value claims reserves will increase.
So, how can your business manage these challenges?
Be proactive. Start by gathering as much information as you can to gauge the scope of exposure and then sharing details of the strategies and processes you have in place to manage them with your brokers and reinsurers.
If you’d like to discuss how Gallagher Re can help you navigate these complex issues and support you in making the next renewals period successful for your business, please do not hesitate to contact us.
