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Casualty reinsurers face discipline test as losses prove hard to price
AM Best says the casualty reinsurance market is difficult to classify, and it is unclear whether recent rate hikes are keeping pace with underlying loss costs amid litigation, higher awards and social inflation.
AM Best said casualty reinsurance is becoming a growing strategic concern for traditional reinsurers as capital levels hit record highs while uncertainty persists around long term loss trends. In its report, AM Best described casualty reinsurance as a different challenge from property catastrophe business because the market is harder to label as either hard or soft.
The rating agency said losses in casualty lines can emerge over many years, with claim development influenced by changes in litigation, legal environments and economic conditions tied to earlier accident years. A key question for casualty reinsurers, according to AM Best, is whether recent rate increases are keeping pace with underlying loss costs.
AM Best said the answer remains unsettled across the market. Some participants believe pricing is still adequate, citing that rate increases generally reflect higher loss costs and uncertainty from factors including social inflation, litigation funding, larger jury awards and changing legal environments, and they point to 2019 as a turning point, while other participants worry adverse loss trends are proving more persistent and rate increases may not be enough.
The report also highlighted differences among reinsurers in how they treat casualty reserves. Even where reinsurers have not yet adjusted loss picks for recent accident years, AM Best said they are not yet treating those years as settled, influencing growth strategies, with some seeking casualty expansion via improved rates and others taking a more cautious approach through tighter underwriting, selective portfolio changes or additional reserve strengthening.