A 360-degree perspective on US casualty from Howden Re

What are your thoughts on where commercial auto stands now?

It’s our view that carriers have recognised the problem and are committed to fixing it. There is a massive discipline being brought to bear in auto. Across the board, we are seeing carriers look to significantly increase their unit rates to reflect the current environment. 

We’re not seeing retention ratios suffer, which suggests there is a universal acknowledgement of the need for change, and that there is still room for even more rate going-forward. 

What are Howden Re’s views on the E&S casualty market?

The excess and surplus (E&S) market has grown significantly in the past few years. Lloyd’s is the largest player in the market as a whole at around $20 billion, which is up almost 30 percent year over year.  

Excluding Lloyd’s, which is not included in the statutory data, the E&S market expanded by around 80 percent from 2021 to 2023. A recent analysis by equity research firm Dowling indicated that direct written premium grew by an additional 11 percent in the first half of 2024. 

An interesting development over the last few years has been a change in the concentration of business and E&S market share. 

Alice Andrews, Howden Re’s head of North American Strategic Advisory has previously noted that there’s been a diversification from the top 10 carriers over the last five years. For example, in 2019 across the entire E&S market, the top 10 carriers held a roughly 50 percent market share; in 2023, that market share had decreased about 15 percent. 

“It’s important to make sure that there is an open dialogue with reinsurers.”

The number of carriers with meaningful share has increased, which is a result of E&S carriers taking advantage of opportunities and admitted carriers shifting mix to their E&S paper or developing E&S platforms due to the dynamics of the admitted market.

When looking at general liability and umbrella specifically, Howden Re’s Strategic Advisory team estimates that the US E&S (ex-Lloyd’s) casualty market is approximately $25 billion, up from $9 billion 10 years ago. In the last five years the compound annual growth rate (CAGR) has been around 20 percent CAGR, while the admitted market is growing less at less than 10 percent CAGR. 

When we think about why that is, it comes down to the ability for E&S carriers to adjust swiftly to the loss trends and to secure the commensurate rate increases. What we are seeing is that the E&S market can be more nimble and navigate the market, which creates a lot of opportunity for growth.

What is going on in the financial and professional lines market?   

There is an increasing emphasis on bringing a data-driven approach to navigating the professional lines market. Whether it is implementing a predictive model as a component of the underwriting process, using additional data sources to inform the strategy, or experimenting with artificial intelligence (AI), carriers are actively focused on adopting innovative approaches. 

We’re also seeing a heightened scrutiny of industry mix as a part of the go-forward strategy.  

We’ve been digging into the data on our side with Brian Turner, the head of Howden Re’s Professional Lines Actuarial team. For example, when we take a look at security class action (SCA) suits, lawsuits against financial firms have been between 10 and 15 percent of SCAs in recent years. Year to date, financial firms have comprised 6 percent of SCAs, so they’re definitely having a good run.  

We’re also seeing carriers leverage new data sources to inform their limit deployment and attachment point strategies. As another example, we are seeing lower claim severity on initial public offering SCAs, which help informs attachment point strategies in that segment.  

As you can tell, we’ve been spending a lot of time at Howden Re focused on professional lines! 

What is Howden Re’s outlook on workers’ compensation? 

Howden Re’s head of workers’ compensation, Weston Vosburgh, will tell you that workers’ compensation has been one of the most profitable lines of business in the insurance industry. There have been more than 10 consecutive years of calendar year combined ratios below 90 percent, and over 10 years there has been $50 billion of reserve releases. Those reserve releases, for a number of carriers, have offset some of the reserve development in the other lines. 

We talked earlier about how optimising industry mix is a vital component to determining the profitability of an individual portfolio. Across a company’s wider book of business, line of business mix is just as important. For the last decade, carriers with a larger comp book have benefited from the profitability of the workers’ comp line. 

The workers’ comp market may have become increasingly competitive, but Howden Re still believes that the line has an $18 billion reserve redundancy.

How will that impact reinsurance 1/1 renewals? 

We have talked about this before but the key to the upcoming renewals is going to be client differentiation.

1/1 is a key renewal date for property and international casualty, but US casualty renewals—and I’m using a wide lens here to refer to all of the casualty lines we have mentioned—are more spread out throughout the year. That’s helpful, as it gives us more recent data points to inform upcoming renewals. 

The capacity is available to complete placements—but ultimately individual renewal outcomes will hinge on ensuring that there is adequate data available to determine the future loss ratio. 

The key to success will be communicating future strategies and any applicable underwriting changes, especially for cedants who have evaluated their limit deployment, attachment strategy, and who have invested the time to optimise industry, state, and retail vs. wholesale mix. It’s important to make sure that there is an open dialogue with reinsurers.

An important subject in any casualty conversation is tort reform. What are your thoughts? 

As my friends outside the industry love to remind me, all of us in the industry should be focused on providing capital to consumers when they need it most. That’s why we need tort reform, to make sure that the people who should be compensated get the help and the resources they need.

Rising defence costs contribute to higher insurance premiums—which Josh Everdell, Howden Re’s head of global casualty refers to as a “social tax”. These costs inflate expectations, complicating the litigation landscape. 

One of the most immediate issues around litigation funding that we need to solve is around disclosures. Who is funding the suit and why? Is the decision-maker the plaintiff or an anonymous third party?

It’s a nuanced conversation, but members of Congress are actively discussing a proposal, so we will see what the next few months hold.

What can Howden Re do to help clients navigate the current casualty market dynamics? 

As we have conversations with clients about their future strategies, there are always two consistent themes: profitability and growth. 

With where we are in the casualty market, there is a lot of opportunity to think differently, and to be innovative to ensure that clients achieve profitable growth. AI, changing market dynamics, and increasing availability of data require different strategies from those that might have worked previously. We are building a nimble, 360-degree team that helps solve issues from every angle. 

“Our brokers are fully equipped to develop bespoke reinsurance solutions.”

Over the last two years, Howden Re has hired more than 50 casualty experts, and significantly invested in our data and tools. Our team’s collective years of casualty experience has increased by over 500 percent, and I’m not exaggerating. 

We support clients across a spectrum of needs—whether they require a capital infusion (via Howden Capital Markets & Advisory), aim to hedge reserve volatility, seek to free-up capital (working with our legacy and structured teams), or wish to enhance their results and growth strategies (with support from our Analytics and Strategic Advisory teams), our brokers are fully equipped to develop bespoke reinsurance solutions, offering comprehensive support from inception to execution.

Carrie Byler is head of US general casualty and managing director, Howden Re. She can be contacted at: carrie.byler@howdenre.com 

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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