The Insurer TV panel: Cautiousness creeping into the casualty reinsurance market

The casualty reinsurance market is starting to become more cautious and conservative as underlying rate rises moderate and inflation increases uncertainty, according to a panel discussion held by The Insurer TV in association with Guy Carpenter.

Will Garland, president – Centers of Excellence, North America at Guy Carpenter, highlighted a bifurcated market, with property very challenged while casualty had less stress and ample capacity.

However, Garland noted the casualty market is starting to see some older year development coming through and rates starting to moderate.

“So we’re starting to see a little bit more I would almost say cautiousness and a more measured approach on the casualty side,” he said.

David Marra, president at Renaissance Reinsurance US and CUO for casualty and specialty at RenaissanceRe Holdings, echoed this. He noted that greater caution than in the past couple of years is now creeping in.

“On the casualty side, you do have a bit of a sea change where we have stalling rate and the extra uncertainty of inflation, which has caused reinsurers to take a more conservative view,” said Marra. “We’ll see how that plays out leading into 1.1.”

Guy Carpenter’s Garland said the strong casualty reinsurance supply is a function of the underlying rate that has been coming through.

“I think the prospective loss ratios look very good,” he said. “You’ve had several years of compounding rate in a number of areas. Obviously for a pro rata deal that’s had a positive impact on loss ratio. So at mid-year we saw it was flat to slightly up on a number of lines of business.”

Garland said there was a “little bit more pressure on pricing” in casualty excess of loss programs, given some of the inflationary factors and reinsurers looking for a bit more margin.

“Our view heading into 1.1 this year is that the market will remain pretty stable on the casualty side, but I think there will be a close view on where rate change is going across all lines of casualty business as well as that loss development,” he said.

Trading property against casualty not a good strategy

RenaissanceRe’s Marra suggested that a shift started occurring in the second quarter as a reaction to additional uncertainty caused by inflation and a stalling rate environment.

“And ceding commissions are elevated over the last few years in response to quite a bit of additional rate and very high quality insurance portfolios,” he said. “Overall clients and brokers have been great about sticking with the incumbent reinsurers who are lead markets and supported them through the cycle.

“But with the additional uncertainty and the elevated terms that have evolved over the last couple of years, I think there will be some challenges in how that rolls through into 2023.”

He added: “If you couple that with quite a bit of dislocation in the property market, trying to trade your property against your casualty is not a strategy that I think will necessarily be successful to get the property deals done. So I think there are some things to be worked out between now and 1.1.”

Chris Donelan, CEO of global reinsurance at Sompo International, highlighted that some reinsurers have pulled back or out of property, which could also impact that dynamic.

“There are a lot of things that people are going to have to work through,” Donelan said. “I think overall loss picks are going to keep commissions probably at or below where we’re at now. I personally don’t see commissions getting much more elevated because your loss picks can’t hold it and make an acceptable margin.”

During the 26-minute in-person discussion, senior executives from Guy Carpenter, Sompo International and RenaissanceRe also discussed: