Casualty re/insurance market is ‘reacting in a measured way’, says Chris Larson, SiriusPoint

In an interview with Reinsurance News around the 2024 APCIA annual conference, Chris Larson, Head of Global Casualty Underwriting at SiriusPoint, highlighted how the casualty market is cautiously addressing challenges like rising losses ahead of the 1/1 renewals through rate implementation.

Larson emphasised that in the U.S., there is significant pressure to ensure rates are adequate, especially after unexpected losses across various lines of business.

“We are closely monitoring both economic and non-economic loss inflation, as these factors remain critical to understanding market behaviour,” he explained.

While new companies have entered the market and some are expanding their coverage, Larson stressed the importance of careful planning around limit deployment and attachment strategies to manage risks. Losses are rising in both frequency and severity, particularly in general liability, commercial auto, and excess lines.

“This absolutely cannot be ignored and is reflective of the market’s continued response to rate adjustments,” Larson stated.

“The market is reacting in a measured way, striving to keep pace with these challenges through rate implementation,” he added.

A recent report by Gallagher Re revealed that rates have been increasing faster than loss costs since 2020. U.S. excess casualty prices have risen by mid- to high-teens annually over the last four years, surpassing loss estimates of 10-12%.

Larson added, “Carriers have been able to mitigate their exposure to further adverse development from soft market years, but now is not the time to rest on our laurels.”

Looking ahead, he noted, “Collectively, dynamics such as scrutiny and pressure on rate adequacy will play crucial roles in determining reinsurance rates and terms and conditions, as we move forward.”

On reserves, Larson acknowledged that the industry has faced significant adverse developments from the soft market period of 2014–2019, and re/insurers are now addressing gaps in soft-year casualty reserving.

“Most reinsurers should be able to absorb the necessary reserving strengthening from their earnings with little or no impact on capital,” he stated.

He added, “Given that adverse development in general liability has been materially offset by releases from workers’ compensation, we expect casualty deterioration in US carriers stemming from the soft years still has further to run.”

Larson emphasised that reserve adequacy varies by company, but factors like understanding loss trends, prudent underwriting practices, effective claims handling, appropriate pricing strategies, and diligent reserving contribute to reserve strengthening. Companies that do not adopt these measures will likely face challenges.

“Social inflation, loss trend, and reserve adequacy are topics that will consistently be incorporated into our discussions and strategic approaches moving forward, across the industry,” Larson added.

He expressed optimism that the industry is proactively addressing loss trends through thoughtful rate adjustments, solid underwriting practices, and proactive claims handling.

Larson highlighted several key factors: “Elements such as risk appetite, underwriting measures, limits management, attachment strategies, and changes in the regulatory environment all play significant roles in our collective approach.”

Larson also noted that nuclear verdicts are on the rise, driven partly by litigation finance. He believes the industry must educate consumers and businesses about the need for legislative reform, advocating for tort reform and transparency to clarify the motivations of all parties with financial interests in civil lawsuits.

At SiriusPoint, bifurcating exposure and focusing on specific risk mitigation strategies are key priorities.

“The importance of prudent limits management alongside thoughtful attachment strategies in navigating these challenges cannot be overstated,” said Larson.

He continued, “Our focus in the reinsurance space is providing capital relief to cedants by writing primary $1m QS and focusing specifically on attritional volatility with loss ratio caps and other loss mitigating features. In this way, we insulate ourselves as best we can from the effects of social inflation.”

SiriusPoint regularly reviews industry data and updates pricing models for risks particularly exposed to social inflation, especially in auto and product liability. While the firm writes umbrella and excess liability business, these are generally done in collaboration with strategic partners.

“Our portfolio is heavily weighted toward working layer business, which creates a greater level of certainty in our results, given the impacts of social inflation on the umbrella and lower excess layers,” said Larson.

Beyond inflation and loss trends, Larson noted that the Federal Reserve’s recent decision to reduce interest rates by half a point, along with potential future cuts, are key concerns in the casualty market. These will impact returns on capital and highlight the need for underwriting discipline and a focus on profitability.

Additionally, Larson mentioned that tort reforms, similar to those recently implemented, are likely on the horizon. “While it is still early days to see how these play out, these reforms could significantly impact claim volumes and the legal landscape in which we operate.”

He continued, “Decisions on judicial appointments under a Trump vs. Harris presidency could have impacts on the casualty market.”

Larson also discussed promising opportunities in the casualty re/insurance sector, particularly legislative tort reforms in states like Florida and Georgia aimed at reducing legal awards and lowering insurance costs.

“The reforms are expected to benefit casualty from a severity perspective, though the long-term impact remains to be seen and re/insurers continue to enjoy rate increases due to the volatile risk landscape. There could be a contrarian thesis in markets where rate levels are high and the baseline assumption is that loss trends will be slow to abate,” Larson commented.

He also pointed to advances in technology and data analytics that are helping reinsurers better understand and price risks, offering them a competitive edge in the market.

Additionally, Larson highlighted opportunities in the Managing General Agent (MGA) space, noting the flexibility, specialised expertise, and unique risk profiles MGAs bring to the casualty re/insurance sector.

“This agility allows for innovative underwriting and customised coverage solutions. As the insurance industry continues to evolve, the partnership and synergy between MGAs and casualty (re)insurers can lead to more effective and profitable underwriting strategies,” he concluded.

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