The last two years tested nerves in the casualty market, but the worst fears failed to materialise. TigerRisk’s Joshua Everdell examines how experience and judgement can help reduce the stress…

Covid-19

A definitive view on what Covid-19 really meant for casualty lines is not quite possible yet, with claims far from over and legal disputes still under way in some cases. As the pandemic finally begins to pass into history one thing is clear, however – the casualty market once again proved to be notable for its unpredictability.

The casualty market was already hardening in 2019 as primary insurers began to re-evaluate risks and rate adequacy. As the global pandemic accelerated the hardening the outcome for capital exposed to property and casualty looked potentially severe. But the response of authorities to the pandemic saved lives, both by directly curtailing the spread of Covid-19, but also indirectly as the slowdown or closure of large parts of the economy also dramatically reduced the incidence of casualty losses.

The data now emerging for casualty in 2020 shows a dramatic drop in frequency and claims, while at the same time rates were hardening. The picture is never quite as simple as one might expect during the event.

Casualty is in a stable condition

Today, casualty rates are markedly higher than pre-2019 – a correction that was under way and largely inevitable with or without a pandemic – but they remain decent. On balance, we think rates will stay stable in the near term, and in particular, the reduced use of limits seems to be largely intact. There are still significant severity loss trends with which carriers have to contend, but pricing and limits use has mitigated their effects.

Reinsurance capital is stable in casualty at the moment and that is based on the expected returns. Indeed, there are signs that alternative capital has increasing interest in the casualty market. How this develops, their precise appetite for risk and their expectation for return will be significant factors in how the casualty market develops over the coming months and years.

The unexpectedly low levels of casualty frequency and losses during the pandemic coinciding with rising rates and the potential interest from new capital sources demonstrate that operating in casualty markets requires a depth of knowledge and experience.

“On balance, we think rates will stay stable in the near term, and in particular, the reduced use of limits seems to be largely intact”

A combination of analytics and judgement

Analytics are a vital tool in today’s complex insurance markets and the combination of TigerRisk and Howden creates a business with sophisticated analytical skills. It also creates a business with human experience, which in casualty is an essential ingredient. Quantitative analysis is essential, but in the moment, particularly in unexpected conditions such as we have all experienced over the last two and a half years, qualitative judgement is also key.

Casualty insurers are looking for expert advice on their original insurance business, both data analysis and experience to help them get their book in as good a shape as it can be. Further, they are looking for creativity and thoughtfulness in how they structure their reinsurance. Part of those solutions will be taking a broader look at their lines of business. Many clients in casualty are also in property and can benefit from examining how they can align and balance those lines of business and their access to capital. Investment banking capability, such as that provided by TigerRisk Capital Markets and Advisory, will be a valuable service to those clients.

Casualty may not be facing quite the same degree of stress that other lines are currently undergoing. However, clients need more than advisers that look at insurance lines entirely in isolation. Our industry needs and deserves something rather more sophisticated.

Joshua Everdell is global head of casualty and head of global accounts at TigerRisk