Casualty: rising rates and tougher terms, says survey

The casualty reinsurance market is bracing for a turbulent 2024, with inflationary pressures, social inflation, and rising claims costs driving significant shifts in rates, terms, and attachment points.

Survey participants shared their expectations for how these forces would reshape the casualty landscape in the coming year.

One hundred percent of all survey respondents indicated that casualty reinsurance rates would rise in 2024, driven by inflation and, in particular, social inflation.

Social inflation, a term used to describe the rising costs associated with legal fees, litigation, and jury awards, is becoming a significant concern for reinsurers in casualty lines.

One respondent noted: “We’re seeing an explosion in legal costs, particularly in long-tail lines. It’s becoming increasingly expensive to settle claims, and the number of large jury awards is growing.

“This means reinsurers are pushing rates higher to cover the rising cost of claims.”

The long-tail nature of casualty claims means that reinsurers must anticipate how inflation will affect losses years down the line, forcing them to raise rates now to cover future exposures.

“We can’t afford to underprice the risks,” said another industry leader. “The timelag between when claims are made and when they’re paid out means that inflation could significantly erode our profitability unless we take action today.”

In response to these pressures, reinsurers are tightening the terms and conditions (T&Cs) in casualty programmes.

Only one-third of survey participants said they expected T&Cs and attachment points to remain the same; the other two-thirds were clear that these would all tighten albeit with small changes, so stricter exclusions and narrower policy wordings in 2024 are expected, as reinsurers seek to limit their exposure to the most volatile risks.

One respondent commented: “Reinsurers are no longer willing to cover every risk that comes their way. We’re seeing more emphasis on tightening up exclusions for areas such as cyber and environmental liability.”

Emerging risks such as cyber attacks and environmental damage are proving particularly challenging for casualty reinsurers, with the unpredictability and potential severity of claims prompting a more cautious approach.

“We’ve been forced to narrow coverage in response to the evolving risk landscape,” explained a survey respondent. “The past few years have shown us that we need to be more disciplined about what we include in our programmes.”

Attachment points moving higher

Casualty attachment points are expected to rise, and respondents were clear on the reasons for this.

“We’re focusing on higher layers of coverage,” said one. “Raising attachment points helps us protect ourselves from the day-to-day losses and lets us focus on the larger, less frequent claims.”

The need to manage volatility is driving this trend, with reinsurers pushing more risk back to primary insurers, particularly in high-exposure lines such as professional liability and general liability.

“We can no longer cover everything.”

“Primary insurers will need to retain more risk,” another respondent said. “We’re raising attachment points so that we can stay profitable in the face of increasing claims costs and more frequent loss events.”

The casualty reinsurance market is set to undergo a fundamental shift in 2024, with reinsurers tightening terms, raising rates, and pushing attachment points higher to better manage their exposure to long-tail claims and volatile risks.

As one participant summarised: “Casualty reinsurers are becoming more selective. We can no longer cover everything, especially with the rising costs associated with social inflation and emerging risks.

“It’s about striking a balance between managing current claims and anticipating future challenges.”

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