Rate increases needed for ‘almost all lines’ exposed to social inflation: Swiss Re CFO, Dacey

John Dacey, Chief Financial Officer (CFO) of reinsurance giant Swiss Re, has said that short-term, rates need to increase for almost all lines of business exposed to social inflation, as the industry continues to navigate the complex US liability landscape.

Global reinsurer Swiss Re delivered a robust set of nine month 2024 results this morning, despite the impact of a $2.4 billion reserve addition in the third quarter on the back of a review of its prior year US liability reserves.

The company explained this morning that this reserve strengthening “accelerated the achievement of the Group’s goal to position overall P&C reserves at the higher end of the best-estimate range,” with enhancing the Group’s overall resilience a key objective for management.

Of course, Swiss Re is just one of numerous re/insurers to bolster their casualty reserves for the 2014-2019 accident years, and while for the most part it appears as though the adverse development is over, questions have also emerged about reserve adequacy for more recent years.

In light of this, CFO Dacey, during an analyst earnings call this afternoon, was questioned on what needs to happen to accommodate the losses in US liability lines, and whether legislative change is essential.

“There are short-term and mid-term solutions to this problem. The short term is rates need to go up for almost every line of business that has exposure to social inflation, and US liability, first and foremost among that,” said Dacey.

“But I could suggest that even today, while pricing for commercial motor has gotten much better, the risk of continued acceleration of ultimate cost for accidents involving bodily injury or death, probably need further action on price, and the primary market has to be the first place to make those adjustments,” he continued.

In the mid-term, Dacey stated that, at the very least, greater transparency on litigation funding as well as the activities of the plaintiffs’ bar and assembling and executing class action suits could be helpful.

“And for juries to understand that when they return these nuclear verdicts, how much of that money is actually going to investors, rather than to the people who suffered through damage, might have a positive impact,” said the CFO.

In terms of legislative change, Dacey noted that there has been tort reform in the US under past Republican administrations, but warned that you can’t necessarily assume that the 2024 Republican administrations will behave in the same way.

“But, over time, within states, I think there’s going to be frustrations that it is difficult to do business when this overhang, and frankly, cost is out there for even mid-sized businesses. This is coming down from large corporate risk to mid-sized risk and anything that involves lawsuits and court awards is going to be a problem for businesses. When it gets serious enough, maybe legislators will try to contain it,” said Dacey.

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