The current momentum in some of the casualty lines “is really exciting”, Busti said during the latest video interview from The ReInsurer.
But it remains too early to tell whether the rate increases that are being imposed on the underlying casualty business are enough to keep pace with the rising loss cost trends within the sector, Busti said.
“If I think about it holistically, it feels like [the rate increases] could be outpacing trends maybe, but we don’t know necessarily where the starting point is, and there are so many macro variables right now that are influencing and will influence the run-off of casualty,” he said.
The low interest rates alone, Busti said, “are nothing short of a catastrophe for long-tail lines”.
“When you put that all together, [the rate rises are] a very exciting start, but [there needs to be] more to come. We need to keep pushing,” he said.
Increased pricing on the underlying business will only go so far to improve casualty quota share reinsurers’ profitability however, and Busti said there also needs to be some pressure applied to ceding commissions within the sector.
“We do need to see continued momentum on rates and we do need to see continued momentum on ceding commissions,” Busti said.
“Quota shares in particular are intended to be partnerships where you should have strong alignment of interests,” the executive said.
“Depending on the circumstances, some commissions if there are really big overrides in there could deviate from that alignment of interest philosophy,” he said.
Each client and deal is different however. As Busti explained, determining what is the correct rate and appropriate ceding commission “is a case by case conversation for the most part”.