Axis’ Osterrieder: High casualty ceding commissions are not sustainable

Dan Osterrieder, head of casualty North America at Axis Re, answers our questions on the state of the market…

Dan Osterrieder – Axis

What trends are you seeing in the casualty reinsurance space in North America?

The primary insurance portfolios that we cover have seen improvements over the last few years which were necessary and recognised by reinsurers. Rate increases are now slowing and in some cases, such as public D&O, the industry is seeing rate decreases and competition from both new and established players. The limits deployed are generally remaining stable and the industry has made an effort to be disciplined; however, there are examples of some portions of the sector increasing the limits deployed, which we are monitoring closely. There is also increased acknowledgement that high ceding commissions are not sustainable.

Many other factors contribute to these market dynamics. The legislative environment in the US has complexities which make it more difficult to evaluate and estimate loss costs. This includes broad trends like the courts still working through significant backlogs brought on from the pandemic and future legislative changes which bring new uncertainties. As an example, the proposed Bill S74A in New York, also known as the “Grieving Families Act”, could materially increase potential exposure for (re)insurers in the state.

What do you think will be one of the biggest topics of discussion ahead of 1 January renewals in casualty reinsurance?

Inflation will likely be the biggest topic of conversation at the upcoming 1.1 renewals, from both social and economic perspectives. The industry has been grappling with social inflation for years and there continues to be examples across the industry each week which reinforce the various issues related to social inflation.

More recently, economic inflation has triggered further reflection on loss trends as higher loss trends are warranted depending on product and attachment point. It remains to be seen if underlying rates will keep up with elevated loss trends to ensure price adequacy, but it is clear there is more uncertainty around loss trend assumptions. We are looking forward to having more in-depth discussions with partners about inflation overall, including the potential positive uplifts from products that price off of an inflation-sensitive exposure base and how that is being captured and quantified.

“Inflation will likely be the biggest topic of conversation at the upcoming 1.1 renewals, from both social and economic perspectives”

Where do you see opportunities in casualty moving forward?

Our North American casualty team at Axis Re brings a broad view of casualty, which includes traditional casualty, professional lines and workers’ compensation. These areas all have their own distinctive dynamics which makes it difficult to generalise but we see opportunities within each.

Cyber is perhaps the most dynamic currently and the industry is exploring the various opportunities it presents. To address this area, Axis Re recently appointed Lydia LaSalata as its new global head of cyber.

Across many segments reinsurance clients continue to evolve including captive arrangements and hybrid fronting carriers partnering with MGAs. Collaboration, dedicated expertise and alignment of interest are key in these spaces.

Axis Re recently identified casualty reinsurance as one of its key areas of focus, in addition to A&H, credit and surety, and specialty. Why?

Axis Re recently shifted its focus to specialist reinsurance lines with a commitment to A&H, casualty, credit and specialty. Axis Re’s interest in the casualty market is long-standing, and many of our clients are casualty focused. We bring deep expertise in the space and a strong track record of paying claims. This line of business will remain a focus and a growth area for us, alongside A&H, credit and surety, and specialty.