Navigating challenges in the US casualty market

TransRe’s Keith Trigg and Tom Loverde discuss the challenges facing the US casualty market.

Open conversation and data analysis are the keys to tackling ongoing challenges in the US casualty market, according to TransRe’s global portfolio leader, traditional casualty Keith Trigg and senior vice president, US traditional casualty leader Tom Loverde.

The main challenges are that “the goalposts keep moving”, said Loverde, “and we have little confidence in the starting point.”

“In 2015-19 we expected the development to be poor, and we adjusted our book accordingly. Now, in 2024 we question the results from 2020 onwards. If the prior years’ figures continue to deteriorate, how can we have confidence in the most recent years, particularly when early signs are not favorable? The market is taking a slow beating and the hits keep coming,” Loverde said.

He added: “In the overall casualty market, we’ve had accelerated rate increases. Our clients were cutting limits, raising attachment points, and now we’re seeing additional remediation occurring.”

The underlying drivers of casualty inflation

While many risk factors are universal – such as geopolitics and climate change – both experts highlighted the US-specific impact of bad faith practices and third-party litigants, emphasizing the extended duration of cases due to increased investment.

Social inflation: a covert threat

In 1979 Warren Buffett described social inflation as “a broadening definition by society and juries of what is covered by insurance policies.”

“Social inflation isn’t new, but it’s fair to say it’s gathered pace,” Trigg said.

Declining trust in corporates and institutions, combined with a shift in attitudes among jurors in “sending a message to corporations” has led to a normalization of large settlements.

“It can be convenient for the market to explain away a soft market period, but plaintiffs’ bars are more imaginative, using bad faith (ECO/XPL) and ‘reptile theory’ to maximize award levels. We’re seeing juries desensitized to the mega-verdicts,” he added.

The impact of third-party litigation funding

Litigation is arguably fast becoming an investment vehicle of its own for hedge funds and private equity.

“Plaintiff attorneys were always very strong, but now we’re getting third-party dollars coming in financing them, and those third parties’ interests may not necessarily align with the claimants,” Loverde explained.

Third-party funding can mean claimants have access to more resources, leading to the prolonging of cases rather than an early settlement.

“They want to maximize their investment, so what might seem like a fair settlement may not be to the interest of an investor. But juries may not know that there’s a much larger Goliath behind the so-called David,” Loverde added.

The growth in auto claims: what’s the solution?

Loverde explained that automotive claims are a significant feeder into the umbrella and excess casualty space. “Mega-verdicts” have been a challenge, with 23 percent of all ‘nuclear’ ($10mn or more) verdicts between 2013 and 2022 coming from auto accidents.

“Auto claims are now the largest feeder in terms of negative results and mega-verdicts in the excess and umbrella casualty space. So, trying to get the proper premium for those exposures continues to be a challenge.

“Some clients are already using data analytics and telematics to assess auto driver behavior and improve risk management,” Loverde added.

Meanwhile, Trigg emphasized the need for transparency in identifying and addressing auto premium and claims separately from other casualty lines. “We can’t fix the problem if we do not know how deep the issue is. We need to see what is being charged for auto exposures versus those claims. Then we can review the statistics for auto independently.”

Outlook: be open and honest

Increased transparency and improved data are key to improving market outlooks for 2025.

“TransRe are long term casualty underwriters. We are not running scared, but we are facing multiple issues and tackling them head on. We understand it is not a single issue, and for the same reason, we do not look to take a ‘one-size-fits-all’ approach to markets,” Trigg said.

“We are working with our cedants to understand why prior years continue to disappoint beyond expectation. Those that can explain the adverse development and strategies in place to fix this (limit management, auto tactics and significant rate), will continue to benefit from our support.”