Bifurcation emerging in casualty pricing; reinsurers remain cautious on US risks: TransRe

Casualty has seen several years of correction, but underwriters are now actively distinguishing between risks.

A bifurcation is emerging in the way casualty business is being priced and placed for international cedants that have a large exposure to US business, versus those that do not. The dynamic is being driven by the tort environment in the US, with reinsurers increasingly concerned by the pervasive impact of social inflation and the increasing size of nuclear verdicts. 

That was one of the observations of Keith Trigg, global casualty leader at TransRe, speaking in an exclusive video interview with Intelligent Insurer (click here to watch the full interview). He was being interviewed alongside Tom Loverde, TransRe’s US traditional casualty leader. 

Split in casualty pricing

They said sentiment overall in casualty is one of discipline. The casualty markets have seen several years of rate increases, in tandem with limits decreasing. Carriers are nervous over adverse reserve developments still coming through many portfolios, particularly in the US market.

“There doesn’t seem to be a slowdown in casualty loss development,” said Loverde. “We are still seeing an uptick of loss ratios. Loss years we thought would perform better, are actually performing worse. That said, the good news is the market discipline. It is holding.”

But Trigg noted a pronounced difference between clients with US exposure – and those without. “ the international  and US markets are going in different directions,” he said. “ the international rates are declining  but multinational, global entities,  with high levels of US exposure are still seeing  a rate increase. There has been something of a flight to international-only business  which has exacerbated that market’s decline”

‘It used to be David versus Goliath; now it’s Goliath versus Goliath.’

Discipline and differentiation

He explained this is driven by concerns over increasing award levels in the US. And it is not only rates that are being affected.  In many cases it also means lower limits deployed, which he stressed  as good portfolio management .

“When there’s uncertainty, that will drive discipline,” he said. “As well as rate increases, there are reductions in limits. But that is also allowing more carriers to be involved. That is a good thing, if limits remain controlled. So, the client can get the same limit but with more panel diversity. That is something I would encourage. And it has been driven by high awards; no (re)insurer really wants to be over leveraged – they want to remove some of the volatility from their books.”

Loverde offered more context on the worry of social inflation – and the size of verdicts. He added that a factor exacerbating the situation is third-party litigation funding, whereby a third-party provides financial resources to a claimant or plaintiff in exchange for a financial return in the event of success.

“It means that plaintiffs have much deeper pockets to bring these cases to court – and are much less likely to settle. Often, use of third-party funding does not need to be disclosed, meaning you don’t know what you are up against. It used to be David versus Goliath; now it’s Goliath versus Goliath.”

Trigg added that while some states are introducing reforms to get a handle on third-party funding, tort reforms are slow to implement. “It means more cases are prolonged as claimants seek the jackpot verdict.”

A knock-on effect of these trends is that reinsurers are increasingly also distinguishing between clients. Trigg said TransRe does this based on the quality of the underlying book of business. It also means reinsurers are less willing to entertain long-term placements.

“It’s certainly not one size fits all approach for us,” he said. “We’re happy to differentiate our clients by the quality of the underlying risks that they write. All reinsurers are cautious. We’re not seeing aggregate deals or long-term placements. There are different structures that all have their place but, for us, it’s more about the risk alignment and ensuring that we have the correct structure in place. 

“The majority of times, a straight quota share. It depends on the right fit for us and the client.”

Thomas Loverde is the US traditional casualty leader at TransRe. He can be contacted at tloverde@transre.com

Keith Trigg is the global casualty portfolio leader at TransRe. He can be contacted at ktrigg@transre.com

To watch the full interview here.

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