Investment banking and financial services firm TD Cowen has shared key observations on the casualty market from a recent meeting with reinsurance players in Bermuda.
Analysts said major casualties still appear to be succeeding in increasing premiums, especially for U.S. general liability lines.
In reinsurance, rates were generally flat, although cession commissions faced progressive reduction pressure, particularly for top-tier accounts.
Still, reinsurers are taking advantage of significant improvements in primary market pricing. Analysts explained that new players such as MGA have entered the casualty space, but not enough to change the overall market trend.
TD Cowen noted that there were doubts about the adequacy of the casualty rate and said rising commercial vehicle damage costs, litigation financing and increased risks from “forever chemicals” – known as per- and polyfluoroalkyl substances, or PFAS – may not have been fully taken into account.
“Overall, there are mixed views on the attractiveness of casualty reinsurance, with some being cautious about the market as it is unclear whether pricing will be sufficient to cope with loss trends, while others, such as ACGL, appear to be more bullish on casualty reinsurance opportunities, at least in certain priority lines,” the company said.
Adding: “Recent news reports (Bloomberg) indicate that the $20 billion litigation financing market is slowing, with hedge funds and other capital providers pulling money. All else being equal, this is a positive for casualty insurance, as litigation financing has been a driver of rampant social inflation that has put pressure on casualty loss costs in recent years.”
Speaking in Bermuda, TD Cowen also said that while companies were confident in their casualty reserves, some attendees suggested the wider industry could face further increases in reserves.
Across insurance-linked securities (ILS) and sidecars, TD Cowen analysts observed an increase in the number of casualty sidecars, intensifying competition in long-tail casualties.
They said: “While established reinsurers believe they are the preferred route for long-tail casualty business, casualty sidecars have begun to proliferate, increasing competition in the sector.
“Specifically, many companies have noted an increase in casualty ILS vehicles as a potential source of increased competition and capacity for casualty insurers and reinsurers, although the impact on the market has been minimal to date.”