Are the perceived ‘good’ market years still holding up to scrutiny amid wider reserve deterioration?
James Slaughter, CUO, Apollo: There are two trends that might cause the market to reflect on the appropriateness of reserves. The first is the apparent acceleration of claims development patterns, driven in part by the changes seen in the US legal system. The other trend that may have impacted recent performance was the unwinding of post-Covid-19 court backlogs. This has extended the tail in several years, so the market will need to see if this is a trend that has worked through or if there is still some latent tail effects to recognise.
Chirag Shah, global head of casualty, Gallagher Re: Performance in the “good market years” (accident years 2020-2024) when pricing and T&Cs materially corrected, appear to be holding up relative to 2019 and prior. Based on the latest US statutory filings (YE 2024), in AYs 2020-2024 we observe a deterioration of 0-4 points in any given year vs a fall of 8-12 points in AYs 2015-2019. The real story is more nuanced and performance can range widely on an individual carrier basis.
In any given AY between 2020 and 2024, the current spread in uninsured loss recoveries among the top 25 commercial liability writers is 40-50 points. As these recent AYs mature, some reversion to the mean may occur. However, a wide spread is likely to remain, with carriers outperforming while others underperform the industry average. Distribution strategy, risk selection/underwriting and claims management are all critical components in how ultimate performance will play out.
Thomas Blunck, CEO, Munich Re: Overall, we can observe that the results of these years are still looking positive, although across almost all casualty lines the loss development is not as good as initially expected. This is due to a heightened loss trend. More and continuous positive rate change is strongly needed to cope with this persistently high loss trend, especially in the US. For a line of business with as much risk of change as represented in casualty, we require an adequate margin reflecting this uncertainty.
Chris Larson, casualty head, SiriusPoint: We have seen market-wide over-optimism, which has and will continue to deteriorate reserved loss ratios, but overall, loss ratios should be much improved compared to the pre-Covid-19 period of 2015-2019. Insurers that have priced risks appropriately should see reserves hold up to scrutiny. Additionally, more stringent underwriting standards and improved risk management practices have contributed to the resilience of these reserves.
Chris Ross, MD North America, Guy Carpenter: It is important to distinguish between reserve deterioration that is due to actual claims, versus reserve deterioration due to changes in incurred but not reported (IBNR) strategies. In our view, much of the stated adverse development for the more recent AYs is being driven more by the latter than the former, as we see IBNR levels that are meaningfully higher today – 12 months into the AY – than we saw in the soft market years.
What’s happening to claims trends on AY 2020-2023 portfolios – do you think underlying trends are worsening, or are carriers processing claims faster?
Jane Farren, executive director of casualty, QBE Re: It is still too early to draw firm conclusions on underlying claims trends for the 2020-2023 AYs, particularly given the longer development patterns. There are some client-specific indications that carriers have improved claims processing, though this may be a response to increased severity driven by social inflation. Overall, continued monitoring is needed to determine whether these trends reflect structural changes or temporary shifts.
Hedley: It’s a mix. There is evidence that some insurers have been closing claims faster, which boosts the certainty of paid losses. However, we’re still seeing real underlying severity increases. The good news is that current sophisticated casualty players have benefited from hefty year-on-year rate hikes and much tighter underwriting, so they’re much better braced, even as loss trends have moved upward.
Jean-Paul Conoscente, CEO, Scor P&C: There has been an increase in the underlying severity of claims due to social inflation, which is driven in part by litigation funding, a less business-friendly public sentiment, and the fact that medical costs are rising faster than general inflation.
These seem to affect the 2020 and 2021 years more. Importantly, social inflation is not limited to the US; for instance, Australia, the UK and other Anglo-Saxon countries are more litigious as well. While we see carriers processing claims faster and often settling because of the low limits they deploy, this has reduced the burden of proof of claims and has contributed to claims inflation.
Blunck: One factor is that many of our cedants invest in their claims activities by even more active claims management, such as automation in claims processing and use of AI. Another aspect is the unprecedented effects of Covid-19 in settling (US) liability claims. Finally, we see an unchanged acceleration of loss trends driven by third-party litigation finance, more complex claims and the unbroken trend to bigger nuclear verdicts and legal system abuse. As we have been using a very cautious approach in writing and reserving for US casualty business, we cannot see any issues in our own portfolio.
Sven Althoff, executive board member (P&C re), Hannover Re: Underlying trends are still at elevated levels, but we are also seeing an abundance of caution when it comes to reserving for newer years, because of the negative trends we observed in the industry for the years prior to 2020. In addition, the disruption caused by Covid-19 makes the interpretation of frequency data even more challenging for the mentioned AYs as you have a mix of lockdown-related slowing down, catching up with the backlog post the lockdowns and the general trend.
Larson: This answer will vary across lines and classes and the role you play in the insurance ecosystem, whether primary, lead, buffer or excess. Commercial auto, for example, has been a somewhat challenged area stemming from a mismatch between backward-looking loss trends and current loss costs, which is a question of rate keeping up with trend against the impacts of litigation funding measures. This is not limited to auto of course. Other areas to be mindful of are product liability and medical malpractice.
Ross: On a ground-up basis, we certainly see severity loss trends continuing to increase at a steady pace, and this is the social inflation/litigation funding dynamic. We believe carriers have gotten better at recognising characteristics of claims that could indicate they will be of greater value than in prior years. As a result, one area we really focus on in our discussions with clients and reinsurers is examining the reserving pace. Paid claims may continue to take longer, but if reserves are being established more quickly, then the development pattern must be adjusted.
Why haven’t reinsurers succeeded in applying real pressure on ceding commissions to date; will that dynamic continue through 1.1 2026?
Hedley: Casualty capacity remains ample, and shareholders and investors still value the steady yield of long-tail business. Reinsurers are exercising underwriting judgement, prioritising preferred cedants and competing selectively. Unless capacity tightens meaningfully, current level ceding commissions will likely persist through 1.1 2026, though margin discipline is tightening, with particular focus on casualty XoLs.
Conoscente: The US casualty reinsurance market is the largest reinsurance segment in terms of premium volume and is a strong cashflow contributor to reinsurers’ balance sheets. Portfolio remediation by insurers, combined with high interest rates, has led to a range of views in the market regarding the adequacy of prices for recent insurance years. Several market players continue to show appetite to grow or maintain their US casualty business, due to its volume, diversification and investment income. This results in sufficient reinsurance capacity, preventing a significant reduction in ceding commission.
Farren: The amount of highly rated reinsurance capacity available is still abundant, and cedants are comfortable retaining more risk due to post-2019 underwriting changes. These dynamics make achieving real improvements in reinsurance terms challenging, thus it remains to be seen how much pressure will be applied through 1.1 2026.
Shah: While supply and demand dynamics play a role, the more important driver has been reinsurers’ views and expectations of profitability, both on a nominal and discounted basis. Over the last few years there have been downward adjustments to ceding commissions on treaties where the underlying profitability dynamics warranted it.
However, in many other cases, given the improvements in rate, underwriting actions and historical performance, ceding commissions have held firm as reinsurers’ confidence in the profitability expectation of those treaties remains high, where corrections in ceding commissions [occurred] they’ve been warranted based on underlying profitability. However, both insurers and reinsurers have exercised discipline to deliver profitability, taking actions such as cutting limits, driving rate, shifting portfolio mix of business and tightening terms and conditions.
Larson: There are segments that have hardened in terms of commission structures, particularly where capital has forced higher hurdles, such as in the InsurTech and MGA spaces, with greater barriers for entry and capital backing any new entrants. Reinsurers are seeking more interest alignment, which means loss-mitigating features, such as premium caps, loss ratio caps, ECO/XPL caps, reviewing MGA and TPA agreements to ensure aligned interests.
They want meaningful carrier participations and demand sliding-scale or appropriate ceding commissions. National account and global account business has had smaller variances in pressure on commissions, with long-term panels and stable buying patterns that often support these measures.
Ross: Ceding commissions relate to pro-rata structures only, and clients have done an excellent job at managing their portfolios through this cycle. They hold a lot of risk and are actively managing their portfolios to hit their targeted returns. In short, from an actuarial perspective, the ground-up loss ratio is improving to remaining consistent, but the severity distribution of losses has changed, which has put more pressure on XoL pricing than ground-up pricing.
Slaughter: The key driver here is the “tail has stopped wagging the dog”. As was seen in the property market in the last decade, the insurance market has taken the lead on repricing, re-underwriting and generally driving change in the insurance risk portfolio. Reinsurers historically used to drive that through the application of terms and conditions. Now, the “dog is wagging” and so reinsurers have been able to rely on the general improvements in underlying portfolios to correct issues. As a result, we have seen a period of reasonably stable ceding commissions, and we would anticipate that will remain the case in the coming years.
There’s been a push on ‘claims made’ policies by some insurers. What reforms are reinsurers most keen to advocate for in the casualty world?
Hedley: Reinsurers would love to see more casualty business written on a claims-made basis. The industry is advocating for tort reforms, such as limiting non-economic damages in high-risk jurisdictions, to rein in social inflation and curb excessive verdicts. Bringing transparency to litigation funding is also a top priority.
Conoscente: We broadly support the push towards claims made but its success will largely depend on the adoption of these policies by the insureds. Throughout, we have consistently advocated the use of clear policy wording to avoid contract uncertainty, as well as the broader inclusion of exclusions such as PFAs. Such practices are more common in some markets, such as the US, but have not yet been widely adopted elsewhere. In our view, they should become standard practice.
Farren: The ability to write policies on a claims-made basis remains an option for carriers to pursue; however, there is still not much of a market for this since new entrants continue to provide casualty capacity.
Blunck: Claims-made triggers have a positive effect on latency but they will neither reduce frequency nor severity. It will have a significantly broader effect to directly address legal system abuse and third-party litigation funding in the US. Such tort reforms, like the recent ones in Georgia and Louisiana, are pointing in the right direction from our point of view, but the impacts of these changes are not clear, as it needs some time until they can be detected in the portfolio data.
Are casualty retro sidecars impacting underlying reinsurer behaviour? Are they here to stay?
Hedley: With investor appetite for casualty risk on the rise, I’d say these entities and vehicles are here for the long term. The capital behind them is large, sophisticated and increasingly strategic, not just opportunistic. If you’re a reinsurer or scaled insurer without one, I’d recommend exploring access to this kind of partnership.
Conoscente: The long-tail nature of casualty business makes sidecars more complex to set up than the more familiar property sidecars, demanding robust, long-term partnerships with investors willing to commit to such vehicles. Such structures generally give back the tail-risk to reinsurers after a certain period (five to seven years). Therefore, it is not a “clean cut” offloading of risks, but more a smoothing mechanism to manage capital.
Blunck: The main question behind this is, can casualty sidecars match investor expectations and cedants’ requirements in the long run? So collateralised solutions need to be technically optimised to come closer to rated paper solutions, which is a challenge and will determine the sustainability of such structures. To find a sustainable match, alternative carriers will need to cover the implicit long-tail nature of typical casualty business and to match this with the investment horizons of investors, [as well as] their expectation to be sufficiently remunerated for illiquidity.
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