The US casualty (re)insurance market has been soft for the past decade. (Re)insurers have been battling declining casualty rates, a low interest rate environment and increasing loss trends.
Add to that the drying up of reserve releases and relatively low returns on investment (ROE) across all casualty lines of business, and you could be looking at quite a gloomy picture.
But global reinsurer Swiss Re is optimistic about the future, as long as the marketplace works collectively to understand forward-looking exposures in order to bring things back to a more sustainable level.
“Insurers and reinsurers need to work together to move the marketplace forward. Understanding the underlying drivers for loss trends and trying to quantify what that means for the products we’re selling to our clients is the real key,” said Jennifer Stevens, senior vice president, and US Casualty Treaty Underwriting Manager, Swiss Re.
“Understanding loss trends can be challenging in the casualty insurance space because it’s a bit of a social science relying on things like legal and societal trends. The more the industry can do to understand these trends and quantify their impact in terms of loss costs, the closer we will get to creating a long-term sustainable marketplace. A better understanding of loss will help us to price correctly and tailor our products accordingly.”
It can sometimes be challenging for casualty (re)insurers to comprehend loss trends because of the long-tail nature of some casualty risks. For some product lines, risks and losses don’t manifest themselves for 20 or 30 years. Being able to estimate the cost of a loss 30 years in advance is no easy task, according to Stevens.
Another complicating factor is that casualty (re)insurers tend to look at events of the past to help predict loss trends of the future. But the past isn’t always the best prophet of the future, said Stevens, especially at a time of monumental digital change within the industry.
“Technology and emerging risks bring challenges to casualty insurance,” Stevens commented. “The industry is always trying to determine what the next big asbestos will be or what new technological exposure might emerge.
“There are always peak risks in different classes of business. But fundamental things like long-tail risk, the lack of data in emerging markets [like cyber insurance], and new technology are where you really have to work to understand what the risks might be in the future.”
The mission of Swiss Re is to make the world more resilient to risk. Swiss Re wants to partner with clients to help them understand forward-looking exposures that are present in the casualty space and develop methods for long-term mitigation, Stevens added.