TD Cowen, an investment bank and financial services firm, has shared key observations on the casualty market from recent meetings in Bermuda with reinsurance participants.
According to analysts, primary casualty appears to still be successfully increasing premiums, most notably in US general liability.
In reinsurance, rates are generally flat, although there is some perceived pressure for incremental decreases in ceding commissions, particularly for top-tier accounts.
Despite this, reinsurers are still capitalising on the substantial pricing improvements seen in the primary market. The entry of new players into the casualty segment, such as MGAs, has occurred but has not been significant enough to shift the overall market trend, explain analysts.
TD Cowen noted that there was some scepticism on the adequacy of casualty rates, and stated that rising loss costs in commercial auto, as well as increased risks from litigation financing and “forever chemicals” (i.e., per- and polyfluoroalkyl substances or PFAS) are likely not yet fully factored in.
“Overall, there was a range of views on the attractiveness of casualty reinsurance, with some cautious on the market with a lack of clarity on whether pricing was sufficient for loss trends, while others (e.g., ACGL) appeared more bullish on the casualty reinsurance opportunity, at least in certain preferred lines,” the firm said.
Adding: “Recent news reports (Bloomberg) have indicated a slowdown in the $20B litigation finance market, with hedge funds and other capital providers pulling back. All else equal, this is a positive for casualty insurance, as litigation finance has been a driver of the rampant social inflation that has pressured casualty loss costs in recent years.”
During their conversations in Bermuda, TD Cowen also stated that although companies are confident in their own casualty reserves, some participants suggested that the broader industry could face further reserve increases.
On insurance-linked securities (ILS) and sidecars, TD Cowen analysts observed that casualty sidecars have increased in numbers, increasing competition in long-tail casualty.
They said: “While well-established reinsurers argue they are the preferred route for long-tail casualty business, casualty sidecars have started to proliferate, which has increased competition in the space.
“Specifically, a number of companies noted the increase in casualty ILS vehicles, which is a potential source of incremental competition and capacity for casualty insurers and reinsurers, though the market impact to-date has been minor.”
