Analysts at KBW anticipate casualty reinsurance conditions will “broadly improve” in 2024 as fears over domestic social inflation sustain primary rate increases, which “should drive down ceding commissions”.
“Core commercial lines’ reserve development (excluding personal auto liability, homeowners, and surprisingly persistent workers’ compensation reserve releases) for accident years 2014-2019 has been mostly adverse since the calendar year 2018, and we believe that this trend persisted or worsened during the calendar year 2023,” KBW’s analysts explained.
They observed a “host of contributing factors” ranging from litigation finance to a broadly angered population that “constitutes an often adversarial potential jury pool”. The firm said that it doesn’t see any major signs of emerging tort reform likely to slow or reverse this tide.
“Importantly, these accident-years’ development doesn’t represent ancient history; commercial casualty lines’ longer tail (and the presumably limited predictive power of COVID- impacted accident-years 2020 and 2021) suggests that current rate levels materially reflect insurers’ previous estimates of older accident-years’ losses,” The analysts added.
They continued, “We believe that in the aggregate (and especially considering the enduring relevance of currently elevated social inflation), commercial casualty rate increases need to continue, if not accelerate, to generate adequate returns.”
KBW’s analyst concluded that for 2024, they expect “more significant improvement on reinsurers’ casualty books as relevant prices rise and terms and conditions tighten”.
