Litigation financing could leave a number of casualty risks uninsurable: Hannover Re’s Henchoz
Hannover Re CEO Jean-Jacques Henchoz has warned the industry that a number of casualty risks could become uninsurable in the future if nothing is done to rein in the litigation finance industry.
In a press conference at this year’s Monte Carlo Rendez-Vous, Henchoz emphasised the worrying impact of social inflation on US casualty, with the thriving litigation finance industry significantly inflating insurance costs.
“I feel very strongly that, from a societal point of view, this is wrong. It will probably make a number of risks uninsurable in the future if nothing is done to counter attack this major concern,” said Henchoz.
The Hannover Re CEO, who had already warned about the impact of the litigation finance industry in an interview with The Insurer at the start of this year’s Rendez-Vous, said the trend was making it difficult for the reinsurer to maintain price adequacy within the casualty segment.
On the danger that litigation finance could see parts of US liability become uninsurable, Henchoz explained that the primary sector continues to insure a number of risks that are priced incorrectly, which was a barrier to reinsurance penetration in certain segments.
He continued that the downside risk may also become intolerable, with the phenomenon of social inflation unlikely to see any immediate mitigation measures.
Executive board member Sven Althoff gave the example of bodily injury, which has seen increased frequency of losses above $10mn. As a result, reinsurers have reduced limits and increased pricing.
Althoff added that there remains a wide spread of opinions amongst insurers and reinsurers on how much rate needs to be factored in to address the issue of social inflation.
At Monte Carlo, casualty reinsurers are briefing that they will be taking a measured cedant-by-cedant and program-by-program approach at the upcoming renewals, with expectations of relatively subdued capacity relative to the higher layers in property reinsurance.
Healthy equilibrium between supply and demand
Nonetheless, Henchoz said the wider reinsurance market has seen a movement towards stabilisation, with greater some signs of equilibrium relative to recent years.
Hannover Re’s CEO said market conditions will continue to be balanced in 2025, with increasing demand for reinsurance cover.
While capacity is available for reinsurers, Henchoz said the bulk of this comes from the main incumbents, which he said continue to drive market conditions. However, he suggested new players may enter the market in the next year or two.
Althoff said that property business is generally renewing flat on a risk-adjusted basis on both the primary and reinsurance side.
For the upper end of programs in North American property there has been some softening, a trend Althoff said began at this year’s renewals.
But the lower end of programs continue to see “very sound” pricing, with both terms and conditions and retention levels holding steady.