New York, November 4, 2024 – Lockton Re, the reinsurance business of the world’s largest privately held independent insurance broker, today launches a new report - An Inflection Point in the US Casualty Reserving Cycle, which discusses trends that indicate we may be close to turning the page on additional reserving for recent soft market years in US Casualty (Re)insurance as an industry.
Mark Braithwaite, Co-Head US Casualty and Financial Lines, Lockton Re, said, “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. 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.”
The report highlights that after extensive reserve strengthening over the past five years, evidence suggests that (re)insurers may largely be through the adverse development from the soft market block of AYs (Accident Years) 2014-2019. While there is more uncertainty in recent years, the data supports the case that the 2020-2023 AY hard market block is more likely to develop favorably than unfavorably based on a number of factors. With a view that if the reserving tide turns such that CY (Calendar Year) 2025 results are unencumbered by adverse development from prior years, this will have implications for the (re)insurance market as CY results typically drive appetite and pricing behavior.
Emily Apostolides, Co-Head US Casualty and Financial Lines, Lockton Re, commented, "(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.”
From a reinsurance perspective, generally, downward pressure on ceding commissions for US Casualty treaties will likely subside over the next 12 to 18 months. 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.
Read the full report here (opens a new window)