In the fourth quarter of 2024, we're seeing continued stress and change in the casualty market, specifically the Umbrella and Excess lines of coverage. Capacity is still being managed by the underwriting community, and pricing, guidelines and even authority at the desk level continue to retreat in ways that remind us of the changes the market saw in 2019 and 2020.

Supply and Demand Gap Widens

As claims litigation results in more severe verdicts and larger settlements, carriers and reinsurers alike are growing increasingly concerned about the capacity they've deployed into the casualty marketplace and, specifically, what verticals they have the highest exposure to.

To offset this exposure, insurers look to their reinsurance partners for greater capacity in both Treaty and Facultative support. However, with the uncertainty surrounding the legal environment and how prior loss years will develop, it appears reinsurers don't believe that the current rates in the casualty market are sufficient, and they predict tough negotiations with cedants going into the January 2025 reinsurance renewal season.

As of the mid-year 2024 renewal season, reinsurers were already seeking around 10% in rate increases for loss-free accounts and even larger rate increases for accounts with losses. Reinsurers are still concerned that increases taken in previous years may be insufficient to cover business affected by adverse loss development, specifically higher-hazard classes of business such as heavy auto-driven accounts, wildfire-exposed risks and even real estate and hospitality in certain sectors.

The bottom line is that large losses and adverse loss development continue to occur.

With the pressure that insurers are facing with rising loss costs and more frequent nuclear verdicts, most are looking for increased reinsurance capacity. For the aforementioned reasons, however, that capacity has proceeded extremely cautiously and even seen a bit of a pullback, leading to a widening gap of supply and demand.

While it's expected that reinsurers and insurers alike can shoulder some of the burden of the increased loss costs and adverse loss development, it's too soon to tell if prior years' rate increases will result in profitability and improved loss ratios for carriers.

It's All About the Submission Quality

As outlined in earlier umbrella market updates, achieving optimal results for clients in the market, for any risk, requires submissions to be complete, thorough and marketed well in advance of the renewal date. Timing is becoming increasingly difficult in the marketplace, and carriers' turnaround times are growing larger by the day. This longer timeline is happening due to pullback on direct authority at the desk level, which leads to more accounts — both new and renewal — being referred to management and sometimes even actuary.

To navigate these turbulent times and evolving market conditions, the industry must continue to adapt and strategize to achieve optimal results.

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