In the recent January 1, 2024, renewal season, casualty reinsurance markets experienced relatively stable conditions despite escalating risks in the industry, according to a report by AM Best.
While concerns over social inflation, litigation funding, and emerging liabilities like nanoplastics and PFAS loomed large, reinsurers maintained a steady course, supported by a favourable economic environment and rising interest rates.
The impact of litigation funding on liability awards and settlements continues to trouble primary insurers and reinsurers alike.
Third-party litigation funding, driven by sophisticated plaintiff attorneys, has contributed to inflated judgments, particularly in lines such as commercial auto, general liability, and directors’ and officers’ (D&O) liability insurance.
Despite these challenges, reinsurers exhibited resilience, maintaining underwriting discipline and holding attachment points steady.
Additionally, the casualty reinsurance landscape saw notable developments in cyber liability insurance. Improved cyber liability results led to a smoother renewal process, with pricing softening and ceding commissions rising.
The issuance of cyber reinsurance catastrophe bonds in 2023 signals growing investor confidence in the market, further bolstering reinsurance capacity.
Amidst these developments, long-term interest rates have surged, providing a tailwind for reinsurers to boost capacity.
While this may make casualty lines appear more attractive, reinsurers remain cautious of systemic risks, including cyber threats and emerging liabilities like PFAS. Such risks could potentially lead to large losses, necessitating a vigilant approach to underwriting.
Overall, despite the challenges posed by social inflation and emerging liabilities, casualty reinsurance renewals have maintained stability, underpinned by a favourable economic backdrop and rising interest rates.
As the industry navigates these complexities, reinsurers remain poised to adapt to evolving market dynamics, ensuring resilience in the face of uncertainty, the report noted.
