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3 February 2023Insurance

Loss cost hot on heels of rate in casualty: signal top industry bosses

Insurers need to press on rate in a number of casualty lines to keep ahead of dangerously close moves in loss trend, industry leaders have been claiming, setting an early theme to a Q4 earnings season that has only begun to get underway.

“Given casualty loss cost trend, rates in most classes need to rise at an accelerated pace,”  Chubb CEO Evan Greenberg (pictured center) told his company’s Q4 call to set the tone. Pricing may be “adequate” for “the majority of casualty lines,” but not for all and not by much.

“There is little to no room for forgiveness,” Greenberg said.

Professional lines and workers comp were called out for a “quite aggressive” competitive environment, with rate declines now in the mix. “If not careful, the market is capable of overshooting the mark.”

Markel followed suit immediately after the Greenberg comments.

“I think with regard to casualty broadly, that is one for the industry to watch very carefully,” Markel's president of insurance Jeremy Noble (pictured right) told his company's Q4 earnings call.

“We should be very carefully watching what is happening to rate and trend in that space," Noble said.

Noble admitted that rate increases had "dipped below" loss cost trend for the Markel total portfolio in Q4, driven by trends in specialty liability lines including public company D&O, financial institutions and excess casualty.

Property has been the clearest exception. “Certainly one that has been improving,” Noble said. Greenberg cited short tail property pricing gains at 14.7% ahead of loss cost trend at 6.8%.

The problem appears to be more of a disregard for threats on the claims side than any major rise in competition on the rate side, comments from the two industry leaders suggested.

“I don’t see an increase in competition; I see a pretty steady market,” Greenberg told analysts.

“But what I do see in certain lines of business is either a lack of recognition of the loss cost environment, naivete around the loss cost environment or just a failure of management to be in touch and drill in and show leadership, take action.”

Inflation – of all kinds – plus the length of the tail may prove a deadly combination. Markel took note of some anomalous readings in its claims data and launched a study Q4 then slashed its pace of reserve releases. The group found a pattern in select professional lines in which it has become “more likely that our layers get infiltrated,” Markel CEO Thomas Gayner (pictured left) said.

The pandemic, with its widespread court closures, lengthened the tail on Markel lines and inflation will hit from multiple sides: social inflation may both play catch-up for lost time and be further driven by the ongoing spike in economic inflation, with its latter-day carry over into wages and services, Gayner suggested.

By the time Markel had counted it out, prior year period reserve adjustment in the primary insurance division could offer only 2.2 percentage points of relief against the FY2022 combined ratio, down from 9.3 percentage points in the prior year.

“We are not in a benign inflation environment in casualty,” Greenberg concurred, with “footprints that go back a number of years.”

“And I am just concerned about that in lines where if you think on a risk-adjusted adequate return basis … you better keep pace with loss cost.”

“Because there is no room,” Greenberg said. “And this can get away from you pretty quickly.”

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