Insurance Markets

Reinsurance Trends in the US Market

Steve Levy, President and CEO of Munich Re US’s Reinsurance Division

Growth in the U.S. casualty reinsurance market has been relatively strong, and much of that growth has been driven by quota share, says Munich Re, US’s Reinsurance Division CEO and President Steve Levy. Steve discusses the current landscape, the rate environment, investments in InsurTech, and more.


What is your perspective on the U.S. casualty reinsurance landscape?

Steve Levy: The U.S. casualty reinsurance market has been experiencing fairly strong growth over the past few years.

An increasing number of casualty insurers have relied on reinsurance to support their own growth and capital positions. This higher demand had helped to stabilize reinsurance market conditions starting in late 2016, and we experienced some modest firming during this past 1/1 renewal cycle following last year’s catastrophe events.

This growth in demand for casualty reinsurance has also coincided with a greater appetite for the business on the part of some reinsurers that had previously focused on property and other short-tail lines. More difficult market conditions for property business have prompted these reinsurers to diversify their books into casualty lines.

Much of the recent growth in casualty reinsurance has been driven by quota share business, given clients’ needs to support their own growth and capital. Demand for excess reinsurance has been relatively stable over the past few years.

The strength and longevity of reinsurance partners is a very important consideration when clients buy reinsurance for long-tail lines. Clients want confidence that a reinsurer will be around 10 or more years to be able to settle claims.

This is certainly an advantage for a well-established, financially strong reinsurer like Munich Re that is clearly committed to the business over the long run.

What is your view, as a reinsurer, on required price and term correction, and how are you choosing relationships in this environment? What about 1/1 treaty renewal results and current momentum?

Steve Levy: In cases where the performance of a specific book of business has been poor and/or worsening, we typically work with clients to gain a strong understanding of the key factors driving the performance and then help them formulate a plan to turn it around. We also have had opportunities to work with clients to develop solutions involving predictive analytics that are expected to improve performance going forward.

In assessing potential new clients, we review their business strategies, enterprise risk management capabilities and their financial performance and position. Most important, however, are their underwriting strategy and capabilities. We tend to focus on the strongest underwriting companies, and we’re highly confident that our client list represents the best underwriters in the business.
We definitely saw some improvements for the 1/1 renewals. Last year’s cat events, along with concerns about deteriorating experience for liability lines certainly served to put a floor at expiring for casualty reinsurance.

What casualty-related data analytics, emerging risk study and engineering support does the reinsurance community provide to our industry? What investment are reinsurers making to improve risk results, including investments in InsurTech?

Steve Levy: The largest reinsurers are investing resources in these areas. For example, at Munich Re, we’re investing in understanding emerging risks, such as climate change, and developing private market solutions for specific perils, such as flood. We’ve established a global data analytics team and have staffed it with a sizable team of talented data scientists and engineers. We’re making these resources available to clients and working with them in a number of areas, including developing risk scoring models using predictive analytics to improve risk selection. Another example is the development of a claims detection model that is designed to improve loss outcomes.

Regarding InsurTech and innovation more generally, this is another area in which we’ve made a significant investment. For example, we put boots on the ground in Silicon Valley several years ago to acquire a strong understanding of the ecosystem, including InsurTech startups. As a result, we’ve acquired a deep and broad network of relationships in this area that also include investments and other partnerships. We’re making these resources available to clients and working with them to enhance their innovation capabilities. AM Best, for example, recently announced that it will include an assessment of an insurer’s innovation activities in its rating assessments.

Our efforts in innovation have been increasingly recognized. A recent Willis Towers Watson survey showed that Munich Re is considered one of the top two most innovative insurance organizations in the world. Please see my recent message on the importance of innovation to business’s success.

So, while the outlook for growth in the U.S. casualty reinsurance market is generally positive, it’s clear to me that innovation will continue to play an important role in insurer’s performance in the changing landscape.