Amanda Lyons, Senior Managing Director, US Casualty at Aon, has contended that the relatively more stable market for casualty reinsurance represented a “silver lining” to an other wise “turbulent” January 1 renewal.
Despite wider reinsurance market and macro-economic headwinds, Lyons argues that casualty remains an attractive market for reinsurers, especially as they look for opportunities to diversify away from property catastrophe.
She notes that underwriting results for underlying casualty business have been improving, following recent positive rate movement at a time of reducing original policy limits.
And at the same time, higher interest rates will translate to improved investment income for casualty lines, a positive driver for future reinsurance pricing.
“Following one of the most challenging renewals in a generation for property catastrophe risk, the U.S. casualty market remains a relative haven of stability,” Lyons stated.
“In contrast to property, capacity in the casualty reinsurance market is plentiful, as reinsurers demonstrate an increased appetite for the class. At the same time, the majority of casualty insurers have benefited from strong balance sheets and positive rating levels and were able to absorb higher retentions if the economics of their reinsurance transaction were not at the right levels,” she continued.
“We see a number of opportunities for insurers to leverage their casualty business, and current high demand from reinsurers for diversifying liability lines, to optimise overall capital and reinsurance protection,” Lyons stated.
Lyons explained that the ability for insurers to take larger net positions, combined with an over-supply of proportional reinsurance capacity, allowed US casualty ceding commissions to remain relatively flat at 1/1 despite macroeconomic and reinsurance market headwinds.
Additionally, she suggested that, in the current market, broader trading relationships have become more valuable as insurers take a more strategic view of their total reinsurance spend, including the interplay between property and casualty lines of business and net retentions.
“At January 1, a number of insurers explored options to build cross-program support for casualty portfolios in order to achieve the property catastrophe placements. Moving forward, we see opportunities for insurers to discuss integrated placements across property and casualty, leveraging a diversified portfolio,” she noted.
Looking ahead, Lyons also expects further opportunities for adverse development covers (ADCs) and loss portfolio transfers (LPTs), driven by the desire to protect earnings and balance sheets from prior year loss activity, while freeing up capital to grow and write business at attractive rates.