US casualty: ‘It’s half-time in America’

TransRe’s Keith Trigg examines the ongoing challenges in US casualty.

As 2015-2019 continues to deteriorate and 2020-2023 starts to disappoint, we can argue about the causes – but the effects are clear, and changes must accelerate.

Today’s casualty market continues to pay for the sins of its recent past – underpricing and careless limit deployment. As it does so, ambiguity over the starting point for rate adequacy adds further volatility to this currently challenging class.

Those soft market sins are replaying as a slow, relentless beating to quarterly results. The only cure for good old-fashioned under-pricing is good old-fashioned underwriting discipline, one renewal at a time. Collectively we said no má s in late-2019 and we raised rates, tightened terms, and lowered limits. Unfortunately, court lockdowns played rope-a-dope with us and, when we stepped back, inflation stepped in.

We have analysed the progression of accident year net ultimate loss ratio projections for a composite of ten large casualty insurers. The findings highlight the beating so far:

We know the backward view is unattractive, but the way ahead also has its challenges.

Public sentiment is negative, partially due to inflation. The same public enters courtrooms every day, as plaintiffs and jurors. Encouraged by innovative (reptile) arguments, supported by innovative (third-party) financing and innovative (bad faith) procedural steps, juries are awarding ever-larger verdicts for pain and suffering, all to punish ‘big-corp’.

These are the middle rounds of our fight for sustainable casualty profitability. To win a points decision, we must focus on what we can hit:

Embedded auto is a major source of nuclear verdicts, but as an industry we continue to struggle to manage it. Rather than embed auto coverage as part of a broader umbrella or excess policy, it should be separately identified, priced and monitored.

Litigation funding: It is challenging to underwrite around extreme verdicts, but that’s the system we have, so price accordingly. At the same time, we could do more to highlight the (corporate) sources of litigation funding and the hidden costs of large awards – they drive up the price of everything.

Non-US Insurers: Global businesses use global insurers to cover their global (including US) operations. Some global, non-US insurers have been slow to reduce limits and raise rates. They need to accelerate both. Do not write a limit you do not want to pay. Even better, provide a separate tower for US coverage, allowing the exposures to be priced and managed appropriately.

The early rounds are behind us. We are down on most judges’ scorecards. The casualty market may be on the ropes, but we still have a fighting chance. Rate rises need to outpace inflation trends by some way (15%+) for some time. We need a margin for error, to survive any sucker punches ahead.

We are in your corner, supporting sensible limit/attachment strategies and data transparency with preferential capacity.

Keith Trigg is TransRe’s global portfolio leader, traditional casualty.