Monte Carlo RVS preview (Part 1): All eyes on impact of casualty deterioration on deal structures

It’s almost that time of year when the reinsurance industry descends on Monte Carlo for the start of the all-important 1.1 renewal discussions. Hotel suites turn into boardrooms for meetings; city dinners are transported to spectacular hilltop villages overlooking the French Riviera; and everyone has to adjust to paying €25 for a coffee.

So, what is everyone going to be talking about? This year, the spotlight has shifted from property to casualty – in particular the US market – where mounting losses and the impact of social inflation are taking centre stage.

In anticipation of the event, The Insurer TV spoke with David Bull, The Insurer's North American editor, and James Thaler, head of news content for the Americas, to get their insights on how these conversations might unfold.

As David explained, a primary topic at this year’s event will be the retreat from US casualty by reinsurers.

“Last year in Monte Carlo, the reinsurers pushed their emphasis towards casualty and the need to really start addressing what they see as unfavourable terms,” he said.

“I think at this year’s Monte Carlo, you're definitely not going to see any reinsurers saying, ‘Okay, we're fine with US casualty; we can give you rate reductions.’”

David went on to suggest that reinsurers will likely adopt a more tailored approach when writing casualty, leading to a “flight to quality” at this year's Rendez-Vous.

"It's probably similar to what we saw even in the hardest points of the property cat market, when reinsurers suddenly took a very differentiated approach toward different cedants," he said.

"Obviously, it's a cliché, but you'll probably see a flight to quality in terms of cedants and the outcomes they can expect from their reinsurers.”

Meanwhile, James suggested that brokers might seek to differentiate the portfolios they represent by demonstrating the stability of their casualty reserves.

"For casualty deals, there's going to be increased scrutiny on reserves," he said.

"If you look at some of the publicly traded companies that have reported reserve hikes, reinsurance brokers will likely draw comparisons between those companies and other portfolios when negotiating reinsurance," James noted.

David also predicted extensive discussions around limit management, as reinsurers seek to protect themselves from deterioration in the sector.

"If you look at the Q2 earnings season, there's been considerable commentary around what's happening in excess casualty, especially as this is a sector where large losses can significantly impact reinsurers," said David.

"If they start getting into the excess loss casualty layers on the reinsurance side as well, you can expect that limit management will become a crucial discussion point,” he added.

Despite the challenging casualty outlook, James noted that buyers may still be able to cede a significant portion of their books – provided ceding commissions remain competitive.

"One of the perennial questions around renewals is how buyers will handle their cession percentages," said James.

"With casualty and professional liability results looking more challenging, I expect cedants will cede more risk. Reinsurers would probably be willing to accept this, as long as the commissions satisfy them."

Property may soften in 2025

On the property front, David expects the orderly dynamics that emerged at last year’s Monte Carlo to continue.

“Fundamentally, the balance of supply and demand in property has moved more towards an equilibrium and we've seen that in renewals so far, in 2024,” he said.

There may even be an increased appetite for property cat among reinsurers due to a better rate environment and the hardening of casualty, which has pushed capital back into property.

“The big part of that has been appetite from reinsurers at those much improved rates, terms and higher retentions to really look to grow their property books.

“At Monte Carlo two years ago, property capacity was scarce, and people were using their property capacity to participate in casualty placements. And, obviously, you could argue that dynamic has flipped now,” he said.

These dynamics, according to David, could lead to there being conversations around the potential softening of the property market at this year's Rendez-Vous. Though this depends on the outcome of what has been predicted to be one of the busiest hurricane seasons.

“And depending on the outcome of the hurricane season, the predictions are that we're going to start to move into a softening property cat insurance market dynamic, at least in the US, in 2025,” concluded David.

Watch Part 1 of the RVS Monte Carlo Preview to learn more about how dynamics in property and casualty will play a role during 1.1.25 discussions.