3 Trends Impacting the Casualty Reinsurance Marketplace

A disciplined reinsurance market with abundant available capacity has created a challenging reinsurance market to navigate. Societal factors and loss trends are significant factors impacting pricing. Insurers and reinsurers continue to address concerning coverages and exposures, particularly in the face of social inflation, leaving reinsurance executives with a fundamental question: are rate increases outpacing loss trends?

“Rising frequency and severity are creating stronger headwinds for the reinsurance market as we continue to grapple with increasing claim costs,” said Jacqueline Lazowski, Vice President – Head of Casualty Treaty Reinsurance at Safety National. “However, carriers continue a disciplined approach with terms and capacity. Limits management and increased premiums are key in this environment.”

We look at three pricing and market condition trends affecting the casualty reinsurance marketplace.

1. Ample reinsurance capacity exists in the casualty marketplace.

The capacity for casualty lines remains strong. Individual reinsurers’ appetites may have changed, but the market has ample capacity. Although prior years’ losses are developing and claim trends are increasing, reinsurance terms have remained steady. Casualty reinsurance renewals have also maintained stability due to continued rate increases and rising interest rates. While there is increased uncertainty ahead, casualty is a long-tail line, and carriers should focus on the financial strength of the reinsured to ensure they can fulfill the obligations to pay future claims.

2. Increased litigation funding is driving claims inflation.

Third-party litigation funding has contributed to enlarged judgments, especially in the following lines: commercial auto liability, general liability, excess liability, and directors’ and officers’ (D&O) liability insurance. This legal financing option allows financiers, or “silent investors,” to invest in lawsuits in exchange for a portion of the settlement. Litigation financing may lengthen cases and increase claim costs, legal expenses, and demand awards.

3. Nuclear verdicts and increasing loss trends remain key components of reinsurance pricing.

For the most part, appropriate pricing is holding in the reinsurance market. On the excess liability side, there have been substantial primary price increases in segments responding to worse-than-expected claims emergence in past accident years. Claims costs are increasing in unanticipated ways due to increased jury awards against insurance carriers, otherwise known as “nuclear verdicts.” Additionally, systemic risks, including cyber threats and emerging liabilities like per- and polyfluoroalkyl substances (PFAS), could potentially lead to significant industry losses and require meticulous underwriting.