While casualty rates may be improving, small incremental movements are the order of the day, not dramatic upswings

Our cedant and chief executive roundtables at Monte Carlo in September revealed an interesting trend: after years of scaling back, (re)insurers are now ramping up their casualty underwriting. Why?

Some reinsurers’ decision to become more involved in the casualty market was noted at the cedant discussion. After years of softening rates, increasing cedant retentions, with no proper investment income and reserve releases drying up, reinsurance companies are keen to underwrite more casualty business. Or are they?

Reinsurers that did not want to be involved in their cedants’ casualty programmes 12 months ago are now asking them for more liability business. Amlin’s new US casualty reinsurance business opened on 1 October. It targets general and professional liability.

So why the turnaround? Casualty reinsurance has shrunk steadily in recent years, with some reinsurers’ casualty premium halving over the last decade or less. It has become harder to make a profit, and the risks ceded have become increasingly volatile. 

Is this just another example of a downward trend, where the diversification credit on offer justifies the writing of unprofitable business? As our chief executive roundtable revealed, everyone is looking for “a story” to appease their shareholders. A whiff that original casualty rates are turning in the US market is enough to get some reinsurers excited.

But the casualty market requires long-term commitment. The last thing anyone wants in the current environment is naive capacity, according to Beazley Group’s Christian Tolle. Casualty is a marathon, not a sprint.

While rates may be improving, small incremental movements are the order of the day, not dramatic upswings. Unless, of course, the industry is hit by an event affecting multiple lines of business, which hasn’t happened in over a decade. The winners will be those that eke out a modest profit, which is no easy feat.