Casualty reserving cycle may be coming to an end

Re/insurers may be reaching the end of adding reserves for adverse developments in the casualty segment, according to reinsurance broker Lockton Re.  

The independent broker, which has operations in Bermuda, said: “We may be close to turning the page on additional reserving for recent soft market years in US casualty re/insurance as an industry.”

The casualty segment has been hit by adverse developments from the accident years of 2016 to 2019 which have forced re/insurers to strengthen reserves over the last five years. 

“While the majority of the industry rhetoric at the moment is nothing but doom and gloom for US casualty lines, our view is that an inflection point is imminent,” said Mark Braithwaite, co-head US casualty and financial lines, Lockton Re. “By definition, it’s always difficult to predict a change in industry trends, but reading between the lines, it feels like we are about to put the sins of the past behind us and enter the next phase of the market cycle in US Casualty Lines. 

“This, of course, has implications for both buyers and sellers of reinsurance as we look ahead to 2025 renewals.”

Lockton Re said that while there is more uncertainty in recent years, the data supports the case that the 2020-2023 AY hard market block is more likely to develop favourably than unfavourably. 

“With a view that if the reserving tide turns such that CY 2025 results are unencumbered by adverse development from prior years, this will have implications for the (re)insurance market as CY results typically drive appetite and pricing behaviour,” the company said. 

Emily Apostolides, co-head US casualty and financial lines, Lockton Re, added: "Re/insurer behavior is heavily influenced by calendar year results, so as we move from a period of material adverse development to the next phase of the reserving cycle, it’s reasonable to expect the market’s behaviour to adjust accordingly.”

 The company said from a reinsurance perspective, generally, downward pressure on ceding commissions for US casualty treaties will likely subside over the next 12 to 18 months. 

“In 2025/2026, ceding commissions will likely start to increase as reinsurers see further evidence that the market corrections made over the past few years have left the industry in a much healthier, more robust position for US Casualty lines.”

The company said that for excess casualty, after five years of insurers achieving double-digit rate increases, prices were likely to flatten out or decline – although the social inflation phenomenon may sustain rate increases for another couple of years simply to keep pricing in-line with perceived loss trends. 

“For Public D&O, rates will continue to soften in 2025 and beyond as the 2020-2024 accident years develop favourably.”

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