Casualty is a pain, not a crisis – Howden Re’s Flandro

David Flandro is not sugar-coating the liability picture, speaking to GR at RVS 2025 in Monte Carlo.

Howden Re’s head of industry analysis and strategic advisory acknowledges stress in US casualty business.

However, he is keen to avoid hyperbole, stating that the market is not at risk of replaying the early-2000s liability calamity, which cost the insurance sector around $200bn in real terms.

There is real pressure in parts of liability, he said, yet the combination of earlier remediation, higher rates, and offsets elsewhere marks this cycle out from the past.

“People are concerned,” said Flandro (pictured). “But this is not the liability crisis; it’s not Equitas; we’re nowhere close to that.”

Concentrated damage, broader offsets

Flandro’s view of the casualty reinsurance market presents strain centred in three key areas.

“The strain is in the other liability occurrence line in the United States, in commercial auto liability, and in reinsurance general liability,” he said. “But this isn’t the case in all areas. E&S casualty, for example, hasn’t had the same negative results and is growing significantly. There are multiple other outperforming pockets.”

He noted about $10bn of adverse development in calendar year 2024 for US other liability occurrence, (vs $4bn in 2023), another $4bn in adverse commercial auto liability development in 2024 (vs $3bn in 2023) and roughly $2bn in reinsurance liability excess of loss ($1bn in 2023), significant totals at industry level.

That is serious, he stressed, but not on the scale of a generation ago, and the wider context matters. In addition, insurers have remediated limits pursuant to strengthening in relevant lines with risk-adjusted rates increasing. This is contributing to better future expectations.

“On a calendar-year basis, total net reserve development remains a source of profitability,” Flandro argued, noting releases from workers’ compensation and various international books have, so far, offset the US casualty drag at many global carriers.

The long-tail nature of casualty necessitates looking back at the previous market cycle.

He contrasted the drawn-out deficiency pattern across accident years 2013–2019 and beyond with the sharp, acute shock experienced in 1998–2002 and prior.

A hardening cycle between the millennium and the financial crisis kept long-tail risk premia high, while the book became remediated – albeit late in the cycle – due to a switch towards conservatism.

“Actuaries became more conservative, increasing their first-year percentage IBNR [incurred but not reported] estimates for US workers’ comp, asbestos, environmental and other casualty business,” Flandro said.

“They finally started doing this in 2002-2004, but the rot was in 1998-2002.”

In the calendar years after the liability crisis, casualty profitability would grow strongly.

Flandro is on record, pressing for caution as far back as 2016, suggesting back then that a more dangerous period lay ahead.

Pressure to raise revenues and a lack of inflation contributed to a lack of underwriting caution in the years that followed, as far as the beginning of the present decade.

But pricing began to harden for many casualty lines, even before the Covid-19 pandemic.

“Rates started to go up in many lines by 2020, including, products liability and general liability,” Flandro said.

The adverse development seen for 2023 and 2024 calendar years, while problematic, is far short of the volumes seen during a previous generation’s liability crisis, he noted.

Social inflation and heavier litigation costs – such as in commercial auto remain real headwinds for casualty, he stressed. Yet, awareness and pricing have turned earlier than in the previous casualty cycle, he suggested.

“It’s just a completely different macro environment this time,” he said.

Higher pricing, greater actuarial conservatism and redundancy elsewhere suggest to Flandro that calendar-year earnings may be able to absorb casualty pain until today’s remediation flows through.

“In short, this is a market where value can be created with the right underwriting acumen and opportunity.”

Property cat: hard-market softening with a potential floor

On property catastrophe, Flandro referred to the broker’s recent “Who dares wins” publication, largely focused on property catastrophe reinsurance dynamics.

“We’re past the peak but we are not in a soft market,” he said. “It is a softening market.”

He noted that reinsurers assumed far less catastrophe risk through 2023–2024 than is typical, underpinning strong profitability, even as rate momentum has eased.

“Assuming a ‘normal’ second half, rates should continue to moderate,” he said of renewals already seen, pointing to early evidence at key mid-year and 1 January placements.

The bigger question is what happens next. Here, he expects a “natural floor” to emerge.

If inflation stays sticky and yields remain higher for longer, hurdle returns for both reinsurers and ILS investors rise, which limits how far pricing can fall, he argued.

Capital formation has also been slower and more ILS-led than in past post-event cycles, another factor that could steady the market once the immediate softening plays out.

“I do not think we are going back to the era of free money any time soon,” Flandro said. “The real drivers are going to be capital flows and interest rates.”