Insurance industry adapts to new challenges, experts reveal at S&P conference

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At S&P Global Ratings’ 40th Annual North American Insurance Conference, industry experts discussed current trends and challenges, agreeing that while the insurance landscape has evolved over the past four decades, the industry has successfully adapted.

Elizabeth Heck, Chairman, President, and CEO of Greater NY Mutual, emphasised that the adaptability comes from the fact that the basic principle of insurance – risk pooling – has “been the same for 40 years, [it’s] been the same for 400 years.”

S&P Global Ratings maintains a negative outlook on the Property and Casualty (P/C) sector, noting a divergence since 2021, with commercial lines outperforming personal lines. Despite a strong first quarter for personal lines, sustained improvement is necessary to consider revising the sector’s outlook to stable.

Barclays’ Peter Troisi anticipates better performance in personal lines and a slight decline in commercial lines due to rising loss costs.

Elyse Greenspan, Managing Director at Wells Fargo, shares optimism for personal lines from an equity perspective, anticipating higher rates to benefit insurers’ books. However, she remains cautious about commercial lines due to reserve concerns, while being most optimistic about reinsurance.

Nearly half of the attendees identified natural catastrophes as the primary risk facing the P/C sector in the medium term. Dan Frey, Executive Vice President and CFO of Travelers Corp., noted that the recent catastrophe loss environment requires P/C insurers to allocate more for such losses than in the past.

According to TransRe CEO Ken Brandt, 2023 was a “generational hard market” for property catastrophe reinsurance, with reinsurers raising prices, increasing attachment points, and tightening terms.

This hard market allowed reinsurers to achieve their cost of capital for the first time in four years, leading S&P Global Ratings to upgrade its sector outlook to stable from negative in September 2023.

Although reinsurance prices have eased somewhat in 2024, property market pricing remains robust with ample supply to meet demand. Brandt predicts that while reinsurance prices will fluctuate based on supply and demand, structural changes like higher attachment points and tighter terms will persist.

With reinsurers reducing their frequency risk, primary insurers are retaining more. Troisi expressed concern about earnings volatility for primary insurers due to increased frequency risk from secondary perils. Greenspan agreed, noting that 2023 was a “frequency year,” heavily impacting primary insurers.

For P/C CEOs, “social inflation”—the rising cost of insurance claims due to increased litigation—poses a significant reserve risk. Factors such as third-party litigation financing contribute to more litigation and costly verdicts, complicating pricing and reserving for insurers.

Heck highlighted that social inflation affects all casualty lines, driving up loss costs. She noted that the industry’s early recognition of this challenge in 2019 is a positive sign for current pricing strategies.

Chubb Ltd. Chairman and CEO Evan Greenberg described social inflation as a “tax on society,” leading insurers to raise rates and increase reserves, ultimately affecting consumers. Joseph Lacher Jr., President, CEO, and Chairman of Kemper Corp., referred to social inflation as “litigation abuse” and “theft from consumers.”

Jack Roche, President and CEO of The Hanover Insurance Group, emphasised that litigation financing has been the top concern for the American Property Casualty Insurance Association for three years, especially given that much of the funding comes from foreign entities and wealth funds.

Brandt said casualty could cause “a liability crisis in reinsurance in the next couple of years.” He characterised the losses coming in as “pretty stunning” and “much higher than our worst-case scenarios,” and he thinks there’s “a lot more coming down the pipeline.”

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