By Michael Loney
March 7 - (The Insurer) - The casualty market remains in a protracted period of rising rates although there is differentiation by segment that is providing opportunities, said a panel at a Zywave conference.
Speaking on a state of the market panel at Zywave’s Casualty Insights Conference in New York on Thursday, Risk Strategies' national casualty practice leader Mike Vitulli described the casualty market as “exhausting”, with a lot of effort required to get deals done.
Vitulli noted that in the run-up to the event he had also called the market “bananas”.
Kristyn Smallcombe, national casualty director at CRC Group, said casualty is “in between a terrible market and a very positive” one.
“This market is not all bad, and it's got segments of good,” she said. “So I think there are opportunities for insureds to differentiate themselves. There's opportunities for brokers to add value. There's been a lot of product development and innovation that's gone on. And for carriers there are just non-stop opportunities.”
Smallcombe added: “We are in a protracted hardish, if you will, market cycle that is a little bit unprecedented. I think that the interest rate environment has largely been the cause for that, because we were at historical lows for so long. When I came in(to the industry), you could underwrite to a loss because of where the rates were and relative to industry.
“I do think we're going to stay in this rate environment for a while.”
When asked whether a casualty crisis was looming, Smallcombe suggested not because the cost of capital in the sector is still more attractive to investors and reinsurers than in the property market.
“As much as we talk about all the negatives, we continue to have new entrants into the casualty market,” she said.
Megan Kelley, head of excess casualty underwriting E&S at Munich Re, suggested there would not be a repeat of the casualty capacity crisis of the 1980s.
“I do really see a responsible industry, and one that cares deeply about profitability and longevity, and what I see is these year-over-year rate increases are not major reactions,” she said. “They're really keeping up with claims inflation, with inflation and all of the exposure.
“So I'm actually very hopeful that won't be repeated, and that these sustained rate increases, while painful, are necessary for us to maintain profitability and stay consistent with claims.”
Kelley suggested that the market is “poised for greatness” in the long term.
“I think where we can get a little stuck is we're all sitting here with our catcher's mitt out just absolutely getting drilled by fastballs. That is not a strategy that can be sustained.
“So I think the people that will be the most successful are the ones that are really preparing now for the future, whether that's harnessing AI, whether that's gathering data, where it's the people that are really investing in their systems and their people in training who are really going to have the most success.”
Michael Ward, SVP and CUO of E&S casualty at Arch Insurance, said that the casualty market now is highly segmented, with some parts seeing greater frequency and severity of losses than others.
“There are certain places it is striking more frequently. So you might see continued attention paid there and some softening in other places. I think you're already seeing that come up to some extent,” he said.
He also highlighted that there is an abundance of carriers in the market.
“That doesn't seem to be a crisis. If anything, I think you could start to see three years, five years down the line, maybe survival of the fittest with some of the new markets. I don't see how there's space for everybody to make it, if you will. So those that are better funded, have more capital, those that have done a better job of the talent wars are more likely to persevere and some of the others might go away.”
Moderating the session, Glen Curley, EVP, head of excess casualty at Nationwide, who is retiring this month, summed up that there is ample capacity in the market.
“There's also so much uncertainty, continued complexity, that is not going to go away. So I don't think we're ever going to go back to an 11, 12, 13 year soft market.”
SHORTER LIMITS LEADING TO QUICKER SETTLEMENTS
The panellists also noted the shift in recent years towards carriers reducing the limits they are deploying.
While this has helped carriers manage their exposure better, the panellists highlighted that one impact of this has been a greater willingness to settle quicker.
“When it was a $25 million limit, Mr Greenberg at AIG was very unwilling to settle that claim quickly, and rightfully so,” said Vitulli at Risk Strategies. “At a $5 million limit, we see that the settlements are happening much quicker, and that scares me, because that means that not only are the settlements happening but that means the claim cost is rising.”
CRC’s Smallcombe added that there are now a lot more carriers on towers that have to be prepared and that brokers need to talk about their position.
“I think we recognise it's kind of a no-win situation in some cases,” she said. “But in defence of even those with short limits, there are also a lot of carriers that don't want to create bad case law either. So they're not going to roll over if they believe that there's a situation in which it would not only be bad for that client but maybe a whole suite of clients and carriers as well.”
Kelley at Munich Re agreed that “things can get a little bit sideways” when complications arise with markets below you.
“I think it's absolutely imperative to really understand and read the policies and the coverages and work with your brokers to understand what you're getting,” she said. “We are seeing, like everyone has said, with the contraction of limits people are, as the saying goes, writing the cheque a little bit faster.”
Ward at Arch added that as an excess writer it is very hard to try to underwrite to another carrier’s reserving or claims handling practices.
“Our claims team tries to educate us on those things, and they certainly inform us about situations that we're sideways, where somebody shows up to a mediation and just doesn't have the authority or is unprepared,” he said. “Those claims can manifest themselves, and become a problem for excess carriers.
“We had one where we were reported a claim the day before it was going to trial. There's not a lot of time to do your due diligence and discover the liability in that scenario!”
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