Question Marks Hang Over Casualty Business
How would you characterize the casualty reinsurance market today? That broad question was put to me in an interview I did recently with WRIN TV. The short answer is that the casualty reinsurance market is quite competitive, but to date underwriting margins have been reasonable and reserves have proven to be adequate.
However, our sense is that loss trend is outpacing pricing trend, meaning that deteriorating rate levels will eventually fall behind companies’ ability to cover intended losses. And this dynamic could be quickened by an uptick in severity, a spike in medical costs or a more aggressive competitive environment.
Some casualty lines are more problematic than others, of course.
We’re having pretty regular conversations with our clients on some casualty lines that are more difficult to place. Some of the tougher classes include pharmaceuticals, nutraceuticals (products that range from dietary supplements and herbal products to specific diets) and other product exposures that have long development patterns. New ingredients can be untested, thus their impact unknown. Injury can be slow to manifest, presenting casualty underwriters with potential loss accumulation spanning multiple years.
Contractors and construction risks pose challenges in a casualty context, too, especially in tougher states. Results can vary widely by company, depending on their claims and underwriting expertise. Attachments points have shifted as working layers creep up into higher limits. Courts can change their interpretation of coverage, especially on the treatment of construction defect losses, leaving an underwriter with a loss that was unforeseen when the policy was first written.
Trucking and other transportation business are always challenging, especially in a competitive market, and the market has not always been effective when it comes to getting appropriate rates. Combine this with what we have seen more recently - greater volatility and severity in general across commercial auto.
The energy space is changing rapidly. North Dakota is promptly expanding oil production and fracking is adding to natural gas production in many other areas. Energy has always been a unique insurance sector, but with changing extraction techniques and greatly increased production, underwriters may be asked to provide more coverage on new and rapidly growing exposures.
For now, though, we continue to see good opportunities in the marketplace for us and our clients. We’ve seen the market go through a number of pricing cycles during our 90+ year history in the business, and we know that the only way to be a consistent and reliable market over time is to offer a strong product at a sustainable price.
As we look to the future, the challenge will be to anticipate and identify future trends - and react accordingly. That's a topic I’ll tackle in my next blog.