Munich Re Specialty committed to casualty even as challenges abound

Munich Re Specialty – North America retains a strong appetite to support casualty-focused programs and MGAs even as it, and the wider industry, contend with rising loss cost trends fueled in part by legal system abuse.

The US casualty sector has been hit with elevated loss cost trends over the past three to five years, and that has resulted in what Kevin Johnson, the firm’s president of North America programs, described as “an underwriter’s market”, with “risk selection and underwriting really critical at this juncture”.

That is because the market is subject to some significant headwinds, notably from legal system abuse.

Legal system abuse refers to actions taking place in the court system that raise costs for defendants and lead to abnormally large verdicts and settlements. Prevalent levers that escalate the impact of legal system abuse include plaintiffs’ attorney advertising, jury anchoring and third-party litigation financing.

“We're seeing more frequent claims, and we're also seeing more claims settling or going to verdict at higher amounts than they have previously,” said Bonnie Guth, head of government affairs at Munich Re America Services.

“It's been widely reported there are more nuclear verdicts and more thermonuclear verdicts, particularly in certain lines of casualty business,” Guth noted.

As she explained, Munich Re and other insurance industry parties are trying to establish which issues are causing claims, settlements and judgments to rocket in individual states, and then to find a way to rein them in.

It could be court decisions, or laws that have unintended consequences and need to be corrected.

“We also need to see more disclosure requirements for third-party litigation funding,” said Guth.

“We're a data-driven industry and we are a society and legal system that values transparency and disclosure requirements; however, for third-party litigation funding, only a handful of states and courts require disclosure, which means that unidentified third parties are interacting with and impacting the outcomes of cases in our courts and legal system.

“Getting some empirical data would definitely help us to understand the impact of these transactions,” said Guth.

Despite the challenges, Johnson said Munich Re Specialty continues to see “plenty of opportunity” in the casualty market for programs and MGA business, albeit the carrier is being careful in its approach.

“We still are going to write casualty business and we're growing the portfolio, but we’re doing it very selectively and thoughtfully,” said Johnson.

“We really have to make sure that our assumptions are strong out of the gate in the portfolio management, and that we're getting the right view of rate and loss cost trends so we can properly manage the portfolios,” he added.

Johnson was quick to note that while the casualty market is often talked about as one entity, it actually comprises numerous different business classes, each with their own nuances.

“There's so much that sits in the casualty space, whether it's primary excess casualty, D&O or workers’ compensation – they’re all operating in micro-cycles and at different points,” Johnson said.

“As a specialty player, we have a directional view on where we want to take the portfolio. If we see excess casualty continuing in its market conditions then that could be an area of growth on top of what we’ve had in the last few years.

“The primary GL market – which is one of the lines that I would say hasn't had its moment in the last five years – could also be a good opportunity for us heading into 2025,” he added.

Learn more about Munich Re Specialty – North America’s Program solutions: https://www.munichre.com/specialty/north-america/en/solutions/programs.html