TD Cowen Highlights Mixed Outlook for Casualty Insurance Market
TD Cowen recently conducted a field trip in London with senior leaders from major reinsurance and broking firms to evaluate current trends in casualty insurance and related sectors. There is a divergence of opinion on casualty insurance's market outlook; some see growing opportunities as casualty rates accelerate, potentially surpassing property insurance in appeal, while others caution that rate levels remain well above long-term trends. Several companies, including Intact, believe current casualty pricing and loss-cost developments do not yet justify new market entries due to persistent challenges in achieving attractive underwriting results.
Specialty casualty insurance is viewed as having greater upside potential compared to admitted casualty lines, amidst commercial auto insurance being identified repeatedly as an underperforming segment. Additional lines such as surety, aviation, and accident & health insurance received comparatively more positive assessments. Non-U.S. casualty business is generally favored, with executives attributing this to less severe social inflation effects abroad, supported by more established legal frameworks.
In London, casualty business is estimated to provide around 110% rate adequacy, with expectations for continued rate increases. However, uncertainties remain about the pace and durability of this hardening cycle, including the interplay between property and casualty pricing dynamics. Historically, casualty treaty profits have absorbed pressure when property markets weakened, but with property rates currently robust, this mitigating effect may diminish, potentially necessitating further casualty rate hardening.
Concerns also emerged regarding reserve adequacy for accident years 2021 and 2022, suggesting a potential financial strain for insurers. In U.S. financial lines such as directors and officers (D&O) insurance, competitive pressures from managing general agents (MGAs) and recent rate declines have raised questions about pricing sufficiency. Some companies are retreating in this segment despite prices holding generally adequate.
Cyber insurance continues to present underwriting challenges due to limited historical loss data, rapid technological changes, and the risks associated with high limit exposures. One carrier indicated a preference for reinsurance exposure over direct underwriting to better manage tail risk. The surety market remains attractive overall, despite growing participation by MGAs, although contract bonds are viewed as more complex than commercial surety bonds. These insights reveal nuanced shifts and ongoing uncertainties across casualty and specialty lines, highlighting the complex re/insurance market environment facing industry stakeholders.