‘Inflection point’ reached in US casualty reserving – Lockton Re

The US re/insurance market “may be close” to turning the page on additional reserving for recent soft market years in US casualty business, Lockton Re has said.

The broker released its report “An Inflection Point in the US Casualty Reserving Cycle” to discuss casualty re/insurance trends, for what has become a major issue between reinsurers and their US cedants.

The report highlighted the extensive reserve strengthening over the past five years.

Lockton Re said that evidence suggests that re/insurers “may largely be through” the adverse development from the soft market block of accident years 2014-2019.

“While the majority of the industry rhetoric at the moment is nothing but doom and gloom for US casualty lines, our view is that an inflection point is imminent,” said Mark Braithwaite, co-head us casualty and financial lines, Lockton Re.

“By definition, it’s always difficult to predict a change in industry trends, but reading between the lines, it feels like we are about to put the sins of the past behind us and enter the next phase of the market cycle in US Casualty Lines.

“This, of course, has implications for both buyers and sellers of reinsurance as we look ahead to 2025 renewals,” he added.

More uncertainty remains from recent years, but the reinsurance broker said data supports the case that the 2020-2023 accident years’ hard market block is £more likely to develop favorably than unfavorably”, based on a number of factors.

If the reserving “tide turns” such that calendar year 2025 results are unencumbered by adverse development from prior years, this will have implications for the re/insurance market as calendar year results typically drive appetite and pricing behavior, Lockton Re observed.

“Re/insurer behavior is heavily influenced by calendar year results, so as we move from a period of material adverse development to the next phase of the reserving cycle, it’s reasonable to expect the market’s behavior to adjust accordingly,” said Emily Apostolides, co-head, US casualty and financial lines, Lockton Re.

“From a reinsurance perspective, generally, downward pressure on ceding commissions for US Casualty treaties will likely subside over the next 12 to 18 months,” she said.

“In 2025/2026, ceding commissions will likely start to increase as reinsurers see further evidence that the market corrections made over the past few years have left the industry in a much healthier, more robust position for US casualty lines,” Apostolides added.

Read the report here.