In the lead up to the 1.1 2024 casualty reinsurance renewals, numerous reinsurers called for wholesale action to tackle economic and social inflation, but according to broker Howden, “outcomes ultimately reflected more discerning underwriting informed by loss experience, underlying rate change and prior-year development across individual portfolios.”
Throughout much of 2023, property catastrophe reinsurance dominated headlines as rates rose significantly, terms and conditions tightened, and attachment points rose as reinsurer appetite for aggregate business dwindled on the back of elevated losses and ultimately poor returns.
Towards the end of the year, however, earnings calls saw executives from some important market participants increasingly discuss the casualty market against a backdrop of economic and social inflation, and the risk to reserve adequacy.
Insurance and reinsurance broker Howden, in its 1.1 2024 renewals report, notes that underlying prior-year loss development and social inflation trends have affected U.S. markets more than international carriers, which was reflected in placements at January 1st.
The casualty renewal was characterised by both sufficient capacity and market discipline, with some markets growing their portfolios in what they view as an attractive marketplace, while others are reducing, which reflects the view from some that the market still needs underlying rate increases, reports Howden.
“Despite continued decreases in pricing in the D&O market, and signs of softening in a number of other casualty classes, underlying rates for most long-tail lines remain near historic highs. Investment portfolios are also now yielding significantly improved returns following rapid interest rate rises,” says Howden.
Despite these tailwinds, pressures elsewhere in the casualty market are mounting.
“Higher inflation has placed scrutiny on reserve adequacy from back years and claims costs going forward, whilst social inflation and nuclear verdicts are driving claims severity higher for U.S. liability exposures (international treaties with U.S. exposure received a considerable amount of attention). Several reinsurers moved to strengthen U.S. reserves in 2023 as a result,” explains Howden.
“Ceding commissions came under pressure at 1 January 2024, especially for programmes with U.S. exposures, with reinsurers citing inflation, higher claims severity and deteriorating underlying economics due to price softening in some areas, financial lines specifically,” adds the broker.
In fact, the renewals report reveals that several programmes saw decreases in the range of one to two percentage points, with steeper reductions for programmes that have not performed so well or where underlying pricing deteriorated.
