Casualty upheaval places profitability in the spotlight at renewal: Guy Carpenter’s Ross

Changing dynamics in the casualty markets are causing reinsurers to place more scrutiny on portfolio profitability, according to Guy Carpenter managing director Chris Ross.

Speaking to The Insurer, Ross points to three primary trends influencing direction of travel in longer-tail classes: social inflation, the impact of large catastrophe-type claims, and the unreconciled nature of claims in occurrence-based policies such as abuse and molestation. 

Ross highlights the impact of social inflation on primary business, including umbrella-type coverage, fuelled by an increase in frequency of severity and also an increasingly aggressive plaintiff bar.

“What’s caused that really has been a change in medical costs. The cost of medical care has increased, settlements are increasing,” he said in a video interview.

“There’s also a perception that maybe the mentality of jury pools is changing – a liable party has to be punished. How do you punish them? By increasing the value of claims,” he added.

These changing dynamics have caused carriers to focus on how they’re pricing business, Ross says, noting that attachment points on umbrella business have increased markedly as available capacity has reduced.

“We’re seeing a lot of capacity come out of the insurance market, particularly in the higher excess layers and that’s going to lead to the increased pricing that we’re seeing and also some shifts in underwriting strategy as carriers seek to refocus their portfolios and position themselves for a hard market,” he added.

As a result, reinsurers are being “very thoughtful” about how they’re approaching the market and are taking more time to analyse the impact of these changes, including a low interest rate environment, and assess how that changes pricing, he said. 

All of this is applying pressure on terms and conditions. Ross highlighted that excess of loss is seeing a particular squeeze in pricing while quota shares are holding up better.  

“The reinsurers are being very thoughtful about it. From an excess of loss perspective there might be a little more pressure on pricing, particularly if it’s impacting that lower layer casualty business,” he explained.

“However, quota shares have been less susceptible to change because of the underlying rate,” he added. “Depending on the rate of the portfolio that’s being reinsured, that rate is really coming through, and we’re seeing that ceding commissions are being better held than on the excess of loss where there is more pressure.”

Insurers should expect more questions and more scrutiny from reinsurers about the underlying profitability of the portfolio, Ross added, noting that it is up to the broker to support and prepare clients through the process and highlight the opportunity the subject portfolio presents to reinsurers. 

“How you position a portfolio to show and demonstrate that profitability is key to being successful,” he explained. “As brokers, we’re really trying to prepare our clients on how to best position their portfolio and their business in the reinsurance market. It’s really all about transparency and understanding their underlying strategy.”

He concludes: “We have got through the spring renewals on time and reinsurers and clients have all been very responsive. It’s been a very good working process for the market as a whole and it’s been very orderly.

“It’s a matter of starting a little early and being extra diligent, being very transparent and making sure we get the information for the reinsurers that they need and things have been completed as well as they can be.”