Tailwinds turn to headwinds for casualty: webinar debate

As casualty starts to experience turbulence, greater discipline is needed by all. That was one headline finding by a panel of senior casualty executives from Markel, Howden Re and Aon who debated this issue in a live webinar hosted by Intelligent Insurer in partnership with Markel.

Four industry leaders joined Intelligent Insurer’s webinar, sponsored by Markel, titled “Casualty: tailwinds turn to headwinds—discipline is needed in turbulent times”.

Don Bahr is the president of Markel’s global reinsurance division, where he oversees underwriting, claims, marketing and operational strategies. Alan Dowling, Markel’s managing director of global reinsurance, deals with cyber transactional liability, professional lines, general casualty and large portfolio deals.

Jim Walsh is managing director at Howden Re, specialising in financial lines, professional liability, transactional liability, and casualty markets, and Randy Stanco, managing director for Aon, uses his long-tail lines experience to help US clients address market challenges and provide insights.

Bahr, Dowling, Walsh and Stanco discussed the complexities of casualty business ahead of another renewal. Bahr opened by remarking on the differing dynamics between property and casualty reinsurance.

“The property market gets a lot of headlines these days about being a hard market following Hurricane Ian, which followed many years of loss for property-cat reinsurance,” Bahr said. “But that cycle is very different from the casualty cycle and limits were greatly reduced during that period.”

Facing industry headwinds

The four leaders discussed challenges facing the market, and Dowling delved into the specific business lines of cyber and transactional liability (TL), areas in which Markel has been particularly active.

He noted that while cyber insurance has seen increased activity, transactional liability has experienced some rate drops, which he believes need to be addressed. 

“There’s been a lot of claims activity, but a significant amount of claim is still coming through that portfolio,” Dowling explained. 

He described Markel’s position on litigation funding, stating that: “Markel has taken a stance that you’re on one side or the other; we generally exclude litigation funding from everything we do.”

Stanco pointed out how the difficulties were consistent across various lines of business, making it essential for reinsurers to deeply understand the strategies their clients are implementing on the front lines, while Bahr noted that social and economic inflation had exceeded industry projections, leading to unfavourable trends in calendar year results. 

“Nuclear and excessive verdicts are driving the floor up for all loss settlements.” Don Bahr, Markel

“Nuclear and excessive verdicts are driving the floor up for all loss settlements,” he said. “They are also going against a very well-funded plaintiff bar, supported by litigation funding.”

Walsh raised concerns that the volatility introduced by inflation has made it more challenging to align rates with the actual risks being underwritten

“When we think about the challenges or tailwinds, we’re trying to figure out how to get to proper rate adequacy.

“When you bring in 7, 8 or 9 percent inflation on your loss trends all of a sudden, it creates a lot more volatility,” he observed.

Bahr agreed, adding: “The uncertainty and the loss triangles exacerbated by COVID-19 make it extremely difficult to price reinsurance business.

“To me, that’s the biggest challenge today in the casualty market: are we getting the trends and the rate adequacy right?”

The conversation turned to managing contingent liability. Dowling said: “We have pushed limits discipline in the space, particularly around contingent.”

“With mergers and acquisitions activity down, people focused on contingent liability and judgement preservation rates online looked attractive, but it brings its own challenges, so putting restrictions around that would be good.”

Describing Markel’s approach to transactional liability, Dowling explained that it was all about transparency. “We look at transactional liability as a casualty cat line: reserving appropriately for it and sharing with our clients what we’re seeing in the market—we have to manage it appropriately,” he said. 

“We generally exclude litigation funding from everything we do.” Alan Dowling, Markel

The quality of relationships

Stanco spoke extensively about the importance of building and maintaining strong partnerships, especially in a market that demands transparency and trust. 

“Relationships are everything in this business: it’s not just about winning deals, it’s about forming partnerships that stand the test of time.

“We pride ourselves on being a trusted partner to our clients and brokers, which means being there in good times and bad,” he continued.

Dowling noted how pivotal relationships were when navigating challenging environments, saying: “We’re working closely with our brokers and clients to ensure that everyone is on the same page.

“It’s about open communication and making sure that our partners understand the reasoning behind our decisions, especially when it comes to pricing and underwriting,” he added.

For Bahr, trust within relationships is everything. “We want to be more than just a market player; we want to be a trusted advisor which means sharing our knowledge and data, and helping our partners make informed decisions,” he said. 

This approach helps manage risks while fostering a sense of mutual understanding and respect that is essential in a volatile market, he added.

“It’s a collaborative approach that strengthens our relationships and builds trust,” he explained. 

Walsh felt a “solid relationship” with clients and brokers was key, saying: “It allows us to have candid conversations about the market, set realistic expectations, and ensure that everyone is aligned on the path forward.”

Strong views on adequacy

“We know that a big claim can have a major impact, so we’re very cautious about how we set our reserves: it’s about being prepared for the worst while hoping for the best,” Dowling explained.”

Bahr was clear about his thoughts on the subject, saying: “Reserve adequacy is non-negotiable.

“We take a very conservative approach to reserving to ensure that we’re not only solvent but also capable of handling any shocks that might come our way,” he noted.

A question from the audience explored the shift from rate adequacy to premium adequacy, particularly in public directors and officers and transactional liability.

“Incurred losses in loss adjustment expenses are outpacing actual premium in the market,” Walsh noted. “There is insufficient premium growth to cover rising losses.” 

Exposure bases had to be quickly adjusted to reflect new realities, Stanco commented, explaining the importance of continuous reassessment of premium levels in response to evolving risk factors.

“There is insufficient premium growth to cover rising losses.” Jim Walsh, Howden Re

Vigilance amid volatility

As the webinar came to an end, the panellists offered valuable insights into the current state of the reinsurance market and their strategies moving forward. 

“We’re not running away from the market; we have capacity to deploy in the right situations and at the right economics,” said Dowling, while Walsh noted: “We need to still focus on rate, be more diligent and keep a close eye on the potential elevation in claims growth.”

All agreed the forward focus would be on disciplined strategies, proactive management and focus on maintaining balance amid volatility.

Stanco said: “Our role in the value chain is matching risk to capital, and there’s sufficient capital to match that capital to the risks out there.” 

“There’s sufficient capital to match that capital to the risks out there.” Randy Stanco, Aon

Bahr expressed cautious optimism about the casualty space, saying: “We have to be vigilant, because social inflation is not going away: it’s out there and it’s here to stay.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.