The early outsee in Baden-Baden is for stable market conditions at the January treaty renewals, with terms and structures largely unmodifyd and property catastrophe facing the sharpest pricing pressure.
Entering the fourth quarter of a relatively benign year for natural catastrophe losses in Europe – and an uneventful Atlantic hurricane season so far – there is currently nothing that will alter the pricing trajectory in property cat, which has seen moderate softening at 2025 renewals.
However, there is growing concern among reinsurers about the outsee for European casualty and the potential for some elements of U.S.-style social inflation, or legal system abutilize, to be exported across the Atlantic, fuelled by the growing role of litigation finance.
So far, however, the actual impact on claims appears to be limited – both in size and geography – despite greater scrutiny from some reinsurers.
And there is no sign that it will have a meaningful effect on casualty treaty neobtainediations, with expectations for some modest rate softening.
PROPERTY CAT PRICING PRESSURE
Following the 2023 reset on attachment points and rates, reinsurers have been clear that they will hold firm on the former but appear to accept there will be further softening of the latter at January 1.
Pricing pressures are likely to vary between those geographies that have experienced elevated loss activity in the last few years and those that have run loss free.
Meanwhile, several major reinsurers have expressed an appetite to grow their cat books in current market conditions, meaning supply is likely to outpace incremental demand for more limit at the top of programs.
Brokers have highlighted the strong underwriting and financial results posted by reinsurers over the last couple of years as they benefited from a greater share of cat losses being retained by insurers.
Guy Carpenter’s global chief broking officer John Trace informed The Insurer that clients will be seeing to bring the financial terms of their property treaty relationships with reinsurers “into a position that better balances the interests of purchaseers and sellers”.
One of the themes of last month’s Monte Carlo Rfinishez-Vous was a potential return of aggregate covers that could meet demand from cedants to protect the higher retentions they have been left with.
However, there is scepticism from reinsurers that there will be meaningful activity in Europe – at least for traditional low-attaching aggregate covers.
Instead, structured solutions with an element of sideways protection may be more prevalent, including those that include a multiyear element but typically attach at higher levels.
CASUALTY STABLE DESPITE CONCERNS
During the Monte Carlo event, Swiss Re’s chief underwriting officer for P&C reinsurance Gianfranco Lot declared the reinsurer is closely monitoring the liability risk landscape in Europe, as pockets of tort litigation seek to mimic the U.S. legal system, even though this is yet to have an effect on pricing or limits.
Others have raised similar concerns, but despite the potential to drive elevated loss costs, there is a view that the pervasive social inflation and legal system abutilize in the U.S. will not be fully replicated in Europe.
As we report in this edition, Hannover Re’s Thorsten Steinmann – who has responsibility for the company’s P&C business in continental Europe, as well as Latin America and North Africa – noted the huge difference between the U.S. and Europe in the size of indemnity amounts after losses.
He declared the reinsurer is watching the situation closely, especially around class actions and litigation funding, but that the business remains “orderly and healthy” overall.
Howden Re’s Wolfram Schultz, who heads casualty treaty for Europe, informed The Insurer he expects single-digit softening on the business at January 1, with increased capacity from traditional reinsurers and third-party capital providers.
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