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Casualty reinsurance demand strong amid market volatility: Aon

15th July 2020 - Author: Matt Sheehan

Aon has reported that demand for reinsurance remains strong in the casualty space as insurers continue to deal with the volatile conditions created by rising social inflation and the COVID-19 pandemic.

Aon logoThe broker expects reinsurance outcomes to vary widely depending on cedent experience and exposures, but noted that rate improvement now carries into nearly every casualty line.

And despite yield curve headwinds, reinsurance capacity remains abundant and diverse in most segments of the casualty business.

In the US, original rate increases and rate adequacy are helping to stabilize reinsurance terms in Professional Lines and to mitigate downward ceding commission pressure on Excess Casualty.

Overall, Aon anticipates that original rates will remain strong through 2021, despite macroeconomic challenges.

Analysts noted that COVID-19 court closures are expected to reduce settlement amounts in the near-to-mid-term as lawyers and plaintiffs seek cash flow.

While exposures have been reduced for many segments due to COVID-19, others have newly emerged and the overall loss picture due to it remains uncertain for casualty lines.

The exposure to these influences is difficult to predict, but many insurers have already adjusted their pricing models to account for observed industry frequency and severity.

Looking at other key issues, several landmark opioid cases are scheduled for the second half of 2020 and pose significant uncertainty for re/insurers.

Casualty policies are typically bodily injury and property damage triggered, so it remains to be seen whether policies will hold up as intended.

Medical malpractice exposure is also meaningful for doctors and hospital professional liability, and drug manufacturers and distributors are further targets.

Additionally, Aon highlighted the cannabis industry as a space to watch, although most re/insurers have approached this area cautiously given the discrepancy between state and federal rules.

Turning to cyber ransomware, the current work-from-home environment is exacerbating loss activity, with SMEs considered to be the most exposed, given their lack of IT proficiency and business interruption exposure.

And finally, Aon reported that industries with exposure to California wildfire risk continue to experience significant pricing and coverage pressure, while wildfire exposures in other venues are also seeing capacity reductions.

However, it added that bespoke wildfire solutions are available in the reinsurance market and have been effective at helping to manage risk for cedants.

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