Global perspectives on casualty and professional lines

Give a brief overview of conditions in the US and international markets. 

Josh Everdell, global head of Casualty: The casualty market is very dynamic globally. With so many different regions and segments, it’s important to understand the unique features of an individual marketplace and legal environment, while leveraging knowledge of the industry. 

From a US perspective, one of the key opportunities for cedants and reinsurers is to work to enhance understanding and estimation of prospective loss ratios across different segments of the business. 

This has become increasingly important due to two different factors: first, significant re-underwriting of casualty portfolios, and recent trends in loss development. For example, we are seeing different development factors during the softer market years (2015 to 2019) and the distinct patterns emerging during the firmer market phase (2021 to 2022). In those more recent years, losses were being settled more promptly. 

Wolfram Schultz, head of casualty reinsurance, Continental Europe: I would agree that we’re seeing this in Europe as well. The main influence for global clients comes from US claims, and the real question insurers are asking themselves is around what changes have been made related to the single risks and within the portfolios? 

We are looking not just at premium development, specific exclusions, derisking in specific industries and occupancies, reducing limits or increasing retentions. These are all aspects of an underwriting cycle and cannot always be judged immediately in premium dollars alone.

The various tools we use internally to show portfolio developments and that could also be drilled down to single risks in specific limit bands, such as REflect and our Data Visualization Tool, are key capabilities to make reinsurers understand the specific positioning of our clients.  

Seth Ruff, head of legacy and structured reinsurance: As a function of some of the softer market years that Josh mentioned, the legacy reinsurance marketplace has significantly hardened in recent years, with capacity dropping and some specialist markets pulling back. Simultaneously, demand is increasing as more insurers look to hedge reserve volatility, exit discontinued segments, or free up capital to support growth of new business. This supply-demand gap has been a hot topic for 24 months.

Our clients are looking for growth and stability in calendar year results. We are implementing legacy and structured solutions to do just this, putting the past in the past, reducing volatility, unlocking capital, and allowing clients to focus on building for the future.

Having the market expertise to navigate in this environment has been a key element of achieving success. We have been increasingly tenacious and creative, for example by bringing in new market players or by carefully curating portfolios and designing bespoke solutions. 

Demand is increasing as more insurers look to hedge reserve volatility. Seth Ruff

Michael Lambert, managing director, Casualty: I completely agree that brokers need to have a technical background within their teams to be able to provide insights for our clients and to reinsurers, highlighting trends and developments within their insurance portfolios.  

How do you help clients navigate challenging climates?

Carrie Byler, managing director, head of US General Casualty: The point about having brokers with knowhow and experience to help guide clients through challenges is one of our core strengths at Howden. It’s important to be able to help differentiate your clients from the rest. 

As we think through the different ways to differentiate clients, I’d like to focus on Howden Re’s wider Casualty Analytics suite. We’ve built this out with stochastic and deterministic models as well as proprietary models such as REflect and our Data Visualization tools. They are platforms that cement our commitment to investing in our clients’ success. We’re leveraging a wholistic blend of the teams’ expertise, data, tools, and technology, including artificial intelligence. 

Especially when navigating what some consider a difficult market, these tools and insights are essential to enabling our clients’ successes. 

Lambert: Carrie, the point you made around differentiating a client’s portfolio against their peers is really important. 

Every book of business has its own nuances and we, as the broker, need to be able to demonstrate what differentiates that book and why reinsurers should support that portfolio. One of the cornerstones of our proposition, that you and Wolfram touched on, is data analytics. It’s one of the primary ways in which we differentiate ourselves and add significant value to the placement process. 

George Harris Hughes, managing director, Casualty Treaty

It is incumbent on brokers to take responsibility for the data that goes to market so that the transactions are as frictionless as possible, and the insights garnered are accurate and meaningful to all parties. 

The transaction remains the part of the process that brokers will live and die by, but it is our conviction that the ability to ingest, augment, and analyse date will, and should, be the defining feature of a meaningful broker-client relationship. Superior data analytics will also allow for a more sophisticated approach to the risk pricing.

It is this view of the broker’s role in the market which led to the development of REflect, our placing and analytical platform. Howden Re has developed this platform which fundamentally transforms the treatment of client data and the way clients receive feedback on their portfolios. It underpins all of our interactions with the market and allows us to differentiate our clients from their peers in an increasingly competitive marketplace.

Ruff: It’s important to note that this isn’t specific to casualty. We bring the entire firm to address a client’s challenges. For example, a client can support growth through traditional reinsurance, but there might be a more interesting or more efficient solution at the intersection between capital markets and reinsurance. It’s up to us to bring the full spectrum of expertise.

“Carriers can adjust different components of a portfolio to protect against nuclear verdicts.” Carrie Byler

What are reinsurance carriers looking for in terms of support?

Everdell: Reinsurers are looking to support carriers which are able to appropriately articulate their go-forward strategies. A lot of it is understanding what the changes in a portfolio are, which might even be happening now, and gaining an understanding of what those core changes mean going forward for the book of business. 

Data is a central part of that and ensuring that the data is available to demonstrate a particular strategy is key to success. Reinsurers have to trust the underwriters that they’re supporting, meaning they have to trust the results they have previously produced and the ones they will produce. 

Our job is to articulate that properly, so reinsurers have that trust. 

Social inflation continues to be a hot topic—what are your thoughts?

Byler: Social inflation is definitely a hot topic, and in line with Josh’s point earlier, working together to understand the impact of social inflation is an opportunity we are working on right now.

The other key topics that we, as an industry, need to focus on are the litigation environment and the need for US tort reform. On a go-forward basis, carriers can adjust different components of a portfolio to protect against nuclear verdicts and address the issue head-on. But it needs to be a multi-pronged approach between underwriting strategy and pushing the legislation. 

Schultz: In Europe, we support a tort reform in the US, as it would have a global impact. Global clients cannot neglect or exit the US market. 

Harris Hughes: I couldn’t agree more. General economic inflation appears to be falling globally, but the US litigation environment remains a concern.

Everdell: Completely agree. We are already seeing this, and if this continues, carriers will have to charge consumers more and rates will have to go up across lines of business. It may be bold to say, but it’s a tax on society. It doesn’t mean that we shouldn’t be compensating for injuries; that’s our job in this industry; it just means the numbers are inflated. 

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