What’s taking place with casualty reinsurance renewals?

The January reinsurance renewal season noticed reinsurers sustaining enough capability for casualty applications amid issues over social inflation and the necessity for reserve strengthening, as revealed from the most recent AM Finest commentary.

The report, titled “Regardless of Heightened Dangers, Casualty Reinsurance Renewals See Modest Worth Adjustments,” highlights that reinsurers have stored a disciplined method to underwriting, significantly compared to extra unstable property covers. This self-discipline can be evident within the stability of attachment factors and phrases and circumstances, which aren’t anticipated to ease within the close to future.

Whereas property disaster reinsurance has skilled a number of value hikes attributable to a rise within the frequency and severity of weather-related occasions, reinsurers have proven reluctance to extend capital allocations to those dangers till they see extra proof of price adequacy.

This cautious stance contrasts with the dynamics noticed in casualty reinsurance, the place reinsurers are rigorously balancing their portfolios amid the challenges posed by long-tail dangers resembling basic and industrial auto legal responsibility.

Affect of social inflation

The commentary factors out that financial and social inflation developments, fueled partially by third-party litigation funding and complicated plaintiff lawyer techniques, are driving up judgments and affecting strains like industrial auto, basic legal responsibility, and administrators & officers (D&O) legal responsibility insurance coverage.

These components contribute to a panorama the place social inflation continues to exert upward strain on loss prices, with third-party litigation funding delivering excessive returns uncorrelated to different monetary belongings.

The commentary additionally took notice of the impression of social inflation on the insurance coverage business, significantly in sectors like industrial auto, the place loss expertise stays difficult. Regardless of constant price will increase over the previous decade, pricing has struggled to maintain tempo with escalating loss developments, additional straining reinsurance pricing.

The evaluation additionally touches on deteriorating driving behaviors for the reason that onset of the COVID-19 pandemic, together with elevated highway fatalities regardless of fewer miles pushed, and the rise in distracted and impaired driving. These developments have led to extra extreme accidents and litigated claims, amplifying loss severity via punitive damages awarded by sympathetic juries.

This atmosphere has resulted in increased prices for extra of loss reinsurance on particular person claims and has challenged the industrial auto sector, which noticed underwriting losses in 2022 harking back to the 2016-2019 interval, with third-quarter 2023 outcomes exhibiting a continued decline.

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