US casualty concerns extending into international market

Casualty is dominating discussions among senior executives amid continued uncertainty over reserve adequacy and pricing levels, and while the issues are most apparent in the US, there are growing concerns about the international market too even if it remains broadly profitable.

Dislocation in the property market has been the major talking point of the past couple of industry gatherings in Monte Carlo, and in particular catastrophe-exposed business.

But as SiriusPoint CEO Scott Egan noted during a recent roundtable, hosted by The Insurer in partnership with Lloyds Bank during the Rendez-Vous de Septembre, “casualty is this year’s property cat without a shadow of a doubt”.

Casualty, he said, “has dominated conversations”.

“Everyone is worried about casualty, and I doubt anyone would be quite so bold as to stand up and say they’re not.”

Jury still out over adequacy

Egan said “the jury’s still out” as to whether reserves for prior casualty underwriting years are adequate, or whether rates on the underlying business have kept pace with the myriad issues that have caused both the frequency and severity of losses to rise, including nuclear verdicts, higher jury awards and litigation financing, along with both economic and social inflation.

Andy Marcell, CEO of Aon’s Risk Capital and Reinsurance Solutions divisions, said there was talk about casualty at last year’s Rendez-Vous and how there would be pressure on renewals, but that did not actually transpire.

“There’ll be more focus on it this year,” Marcell stated. “There’ll be more pressure, but I don’t think it will be a sea change,” he said.

“In the US, there has been a lot of reserve development, and there's been a fairly robust adverse development and [loss portfolio transfer] market. Some companies are being proactive, some are being reactive.”

At the upcoming renewals, Marcell said reinsurers will require more information from cedants, with insight into clients’ claims and actuarial departments, and who is making underwriting decisions.

“That is where reinsurers will be focused on casualty at 1.1 and throughout 2025,” Marcell said.

“[Reinsurers will be] trying to understand how clients are addressing the challenges with rate, attachment point and all the tools that they have available to them.

“There’ll be significant differentiation between some of the clients, with reinsurers asking for more detailed information, more transparency and earlier renewals as a consequence.

“As ever, this is where we will be working extensively; ensuring that each of our clients develops their own unique view of risk to facilitate successful renewal negotiations,” the Aon executive added.

Not every company impacted

Acrisure Re CEO Simon Hedley said it is important to remember that not every company, both in terms of cedant and reinsurer, is having a negative experience currently.

“At all times, there’s some level of anxiety around US casualty. But there’s a range here at the moment – there is a cohort of reinsurers who are open for more casualty business – they’re going to get the data they need, and they’re going to price it.

“And reinsurers will want to keep working with core clients – that’s a big factor as well,” Hedley said.

However, Hedley said at the other end of the scale, there are some reinsurers that feel “we could be approaching an 1980s-style casualty crisis”, although he added: “I don't think that is the case.”

Even with those issues in mind though, Hedley too believes that casualty reinsurers demanding more information will be a key theme at the upcoming renewals.

“Reinsurers will want more information than they've had before, and by and large we’ll reach an acceptable landing on terms and conditions. That's what I think is going to happen next year,” he said.

While there is plenty of discussion about the performance of the casualty (re)insurance market currently, SiriusPoint’s Egan was keen to point out that it is more nuanced than simply saying the entire sector is challenged.

“It’s just too easy to say ‘casualty’,” he said. “You have to get into the sublines, because some of them are not as bad as each other. I sometimes get frustrated that we talk about ‘casualty’ as a whole, because it’s actually made up of lots of different markets.”

Considering the casualty market in the US, Egan suggested some companies could be keeping their cards close to their chests over their reserve adequacy, with any mention of strengthening being needed swiftly having an impact on share prices.

“If you look back over the last six months, every time an insurer even talks about strengthening casualty reserves, the stock price is immediately impacted,” he said.

Egan said if a CEO or a CFO was asked whether they would strengthen their reserves if they could, “the answer would most likely be yes”.

“And then there’s a ‘but’, because they’re having to play a chess game if they're a public company.”

International concerns mount

While casualty (re)insurance is written all around the world, the US typically draws the most attention given it is the largest market, but also because that is where the industry is most challenged.

“[The current challenges are] mainly a US issue,” said Aon’s Marcell. “In the rest of the world, casualty is a growing product and, broadly speaking, pretty profitable,” he added.

Waleed Jabsheh, IGI’s CEO, was quick to note though that there are also challenges in international casualty markets.

“The US casualty market is the one that attracts the most attention, but the landscape is changing around the world,” he said.

“In the UK and Europe, litigation levels are up, and so any casualty underwriter, and of course it depends on the line of business as well, has to be very careful. It's a very delicate situation,” Jabsheh added.

Looking ahead, Kathleen Reardon, CEO of Hiscox Re & ILS, considered how insurers and reinsurers will utilize earnings come the end of the year.

As the Bermuda-based executive noted, and obviously dependent on whether a major catastrophe event strikes, insurers and reinsurers expect 2024 to be a profitable year. As such, Reardon said there will be retained earnings.

“How much opportunity will both insurers and reinsurers take to strengthen their balance sheets, if this is an attractive year, and reduce the potential increase in dedicated reinsurance capital?” Reardon said.

“Retained earnings will likely be eroded by the loss trends reinsurers are seeing in casualty. Despite that, I would expect some of those retained earnings to be redeployed in cat,” she added.