Casualty reinsurance rate catch-up could be ‘multi-year journey’: Gallagher

Casualty reinsurance could be in for a ‘multi-year’ market hardening as the industry wakes up to possible reserve inadequacy following the recent bout with economic inflation and enduring problems with social inflation, top officials at global insurance broker Arthur J Gallagher have warned. 

“More and more we are hearing about the need for rate in casualty lines,” AJ Gallagher CEO Patrick Gallagher told his company’s Q4 earnings call of market signals. “If prior year development turns into a big concern, we think it could be a multi-year journey of rate increases.”

Carriers are “not necessarily comfortable” with their reserve positioning following the bout with inflation and the outlook from recent courtroom verdicts, he said. “To get them right, you would have to see pricing increases to do it.”

Unlike the 2023 market correction in property, which was also largely triggered by having failed to account early for inflation, casualty need not reprice in a single painful step, Gallagher believes. 

“I don't think that with the payout structure you have in casualty, that you need to [do it] in one year,” Gallagher said. “So you are going to possibly see a firming that does in fact take a few years to catch up with reality.”

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