Focus on casualty sharpens in Q3 earnings commentary
The CEOs of leading US-listed property casualty insurers had a heightened focus on casualty losses and reserves on Q3 earnings calls amid rising loss costs and a hardening reinsurance market.
Executives in general suggested that US commercial property casualty pricing remains strong.
For example, Arch Capital CEO Marc Grandisson on an earnings call at the end of October said his company broadly continues to achieve rate increases above loss trend in most sectors of the P&C market.
He described the current hard market as a play in three acts.
The first act is the current hard market that started in primary liability insurance in 2019, with the unique circumstance of a two-year pause in claims activity due to a global pandemic.
Grandisson continued that the second act "introduced Hurricane Ian as a main character where property reinsurers had to adjust both their pricing and risk appetite”, while capital also got more expensive and the industry had to respond to meet new expectations from investors.
“While property has been the most recent driver of this market, as we move into Act 3 we are faced with increasing evidence that casualty rates widely underpriced and oversold during the last submarket need to increase,” Grandisson said.
He continued: “We expect this third act of the extended hard market – already one of the longest in memory – to persist until the industry’s reserving issues are resolved and until capital rates generate positive results. Arch is well positioned to capitalize on this operating environment.”
The executive said that Arch is likely to deploy capital first in reinsurance as that “nimble” group can grow more quickly than the insurance group as new hard market opportunities arise.
“Today, market trends point to a reinsurance-driven GL hard market, and we stand ready to act. The third act has barely started, but things are very promising for Arch,” he said.
CNA’s Robusto: “Inflection point” continues in Q3
CNA’s Dino Robusto on an earnings call at the end of October said that an “inflection point” had been seen in Q2 where excess casualty and commercial auto rate increases accelerated. This continued into the third quarter.
“We believe higher rates for longer are appropriate in these lines, and we are pleased that there is an increasing awareness for this need in the marketplace,” he said.
CNA’s property casualty renewal premium change in the quarter of 6 percent – down sequentially from 7 percent in Q2 2023 – reflected a rate change of 5 percent, consistent with the first half of the year, and included an exposure increase of 1 percent, Robusto said on the call.
“Casualty rates continue to improve with commercial auto rates at low double digits in the quarter, 1 point higher than the prior quarter,” Robusto said. “And rates for excess casualty are now double digit, up a couple of points from last quarter.”
CNA’s Robusto also highlighted that property pricing continued to be very strong in Q3, with national account rate increases in the mid-20s and middle-market property rate increases “at their highest levels during this hard market at low double-digit levels”.
Speaking to investors in early November, AIG chairman and CEO Peter Zaffino noted the heightened focus on the casualty liability and excess casualty market, particularly in the US.
“Our business is not immune from social inflation, but we anticipated it early, and we took action. The consequence is that we’re very pleased with our existing portfolio and we’re well positioned to be able to prudently take advantage of opportunities that exist in the current marketplace.”
Zaffino highlighted the work AIG has completed on portfolio remediation, including an overall reduction of $1.4trn in gross limits since 2018.
In North America casualty, AIG’s gross limit for its excess casualty portfolio, including lead umbrella, has decreased by over 50 percent since 2018.
“Our average limit size has also reduced by over 50 percent. Average lead attachment points, which protect us from frequency and lower severity losses, have more than doubled since 2018.
“In terms of gross pricing, primary auto and primary general liability rates have increased 200 percent since 2018, and excess casualty rates have increased by over 250 percent, remaining well above loss cost trends,” Zaffino said.
Chubb’s Greenberg: Adverse casualty loss trends “nothing new”
Speaking to investors in October, Chubb chairman and CEO Evan Greenberg had commented on industry perceptions of under-reserving in casualty, calling the topic of adverse loss trends “old” news.
The insurer disclosed a $55mn reserve charge in Q3 connected to long-tail lines business.
“We’ve been talking about this for a number of years, so, no, there’s nothing new,” Greenberg said, adding that reinsurers “have lagged in recognition” and are “just beginning to catch up to it”.
“It’s auto and excess casualty, and it’s those years of ’17 to ’19, maybe a little bit of ’16, and that’s about it,” he said.
Speaking about the commercial P&C rate environment more broadly, Greenberg said rates and price increases in property and casualty lines in aggregate remained “strong” in the quarter in both North America and internationally, while decreases in financial lines in North America continued.
The insurer’s commercial pricing was up 13.9 percent in North America, up from 12.8 percent in this year’s second quarter.
WR Berkley president and CEO Rob Berkley in October suggested the industry now needs to pay the kind of close attention to the commercial auto segment that it has to property over the last 18 months.
“Obviously the marketplace for the past 12, 18, 24 months or so has been very focused on property and with good reason,” Rob Berkley told analysts.
The CEO argued that the auto liability segment “is one that people need to continue to pay close attention to”.
“When it comes to social inflation, auto liability has the biggest bull’s eye on its chest, and by extension that clearly spills over to excess and as well as [to] umbrella,” Berkley said. “Social inflation continues to burn, and we do not see that abating anytime soon.”
The executive also expressed bullishness on WR Berkley’s ability to continue driving rate in addition to maintaining strong margins. The insurer reported 8.5 percent increases across its business excluding workers’ comp in Q3, an acceleration from the 8.2 percent in Q2 of this year.
Berkley raises workers’ comp concerns
Berkley also expressed caution on deteriorating conditions in workers’ comp, stating that it will become “more and more into focus for a broader audience over the coming quarters”.
“We continue to be of the view that one needs to be very mindful of medical [loss] cost trend,” Rob Berkley said while discussing the workers’ comp segment.
“We went through a period of time where it was pretty benign,” he said of loss activity in workers’ comp. “We think that is shifting very quickly,” he said.
A few days after Berkley’s comments, The Hartford chairman and CEO Chris Swift expressed optimism on workers’ comp pricing and loss cost trends.
He called the segment “a highly profitable line of business” and said his company – the second largest workers’ comp writer in the US – has not made any changes to its claims frequency assumptions for workers’ comp since the beginning of the year.
Chubb’s Greenberg described the financial lines underwriting environment as “aggressive”, particularly in D&O, where rates have continued to decline.
CNA’s financial institutions and management liability rate change improved 5 points to -4 percent, driven by D&O price decreases which moderated in the quarter.
“We believe that is rational as the third quarter reflects the start of a second round of price decreases,” Robusto said.