Casualty panel warns on PFAS risk amid potential for $80bn of US litigation
(Re)insurers are taking the necessary steps to assess potential PFAS exposures across their portfolios, according to a casualty panel hosted by The Insurer TV at this year’s Rendez-Vous in Monte Carlo, amid rising awareness of the growing momentum around litigation.
Bob Reville, CEO of Praedicat, told the panel that his firm has modelled the expected cost to corporations from PFAS litigation at $80bn.
"Praedicat estimates that the expected loss from PFAS water contamination litigation in the US will be $65bn, and we estimate that the expected loss from bodily injury litigation will be about $15bn. So, combined, water contamination and bodily injury could result in about $80bn in litigation," Reville said.
"We also have a 1 percent probability threshold for a PML of about $200bn."
One of the key issues with PFAS – or per- and polyfluoroalkyl substances – is their ubiquity in everyday life, present in everything from frying pans to pesticides.
Phthalates, Reville warned, are equally as prevalent as PFAS, with concern beginning in October 2023 after the release of a study linking hair relaxers – where phthalates are commonly found – to uterine cancer.
“While PFAS chemicals are known as the ‘forever chemicals’, phthalates are called the ‘everywhere chemicals’. If the hair relaxer litigation evolves into an ‘everywhere chemical’ litigation, it could cause large-scale losses,” said Reville.
Reville spoke as part of The Insurer TV’s casualty panel at this year's Monte Carlo conference alongside Krista Bonneau, chief reinsurance officer at Arch Insurance International; Wolfram Schultz, head of casualty reinsurance for continental Europe at Howden Re; and Bob Forness, CEO of MultiStrat.
Professionals on the panel were in agreement that the sector is reacting with necessary caution to PFAS exposures, with Arch’s Bonneau noting that reinsurers in particular are focused on assessing PFAS exposures within cedants’ portfolios and examining how underwriters are managing the risk.
“Reinsurers are trying to get a handle across their insurance portfolio where they might have exposure and what that might look like in the historical portfolio,” she said.
“As well as making sure that on a go-forward basis, they feel comfortable with the underwriting strategy around that potential exposure and that the insurance companies continue to refine that approach.”
Casualty modelling
As the casualty sector grapples with large risks, modelling has become increasingly important – a trend that was underscored by the sale of Reville's Praedicat to Moody’s earlier this summer.
Reville compared the current state of casualty risk modelling to property catastrophe modelling in the early 2000s, just before the sector was tested by several major events such as Hurricane Katrina in 2005.
"I'd say we’re in the equivalent of the early 2000s. Property cat modelling emerged before any major catastrophes, but then we had events like the Northridge earthquake and Hurricane Katrina. After those events, demand for property cat modelling increased,” said Reville.
“Similarly, in casualty we started modelling before casualty cats, and then you have PFAS, and you've got opioids, and whatever's coming next – ultra-processed foods, microplastics, or whatever.”
MultiStrat’s Forness added that actuarial practices in the casualty space have matured over time.
“I'd probably just add to that on a primary basis. I think casualty actuarial practices are pretty well proven out, and modelling has been with us for quite a bit of time,” he said.
“I think there's a lot of modelling at the primary level on casualty lines of business. It probably creates some advantage over time, whereas cat early on was limited in some of the primary exposure.”
Watch the full panel to hear more on US casualty deterioration in the face of social inflation…