US Casualty Insurance Market Correcting Rapidly After Tough Spell

Casualty insurance has been shrouded by many challenges in the past few years. Profit margins in casualty lines of business have been generally quite thin, driven by long-tail challenges and inflated claims in areas like commercial transportation, catastrophic property and new risks like cyber and technology-related exposures.

As a traditionally cyclical industry, insurers never stay down for long.  The past year has seen an “increase in discipline and risk selection” by underwriters in the North American casualty insurance space, according to Joe Cellura (pictured), president – North America casualty, Allied World. He described “an encouraging trend” of underwriters injecting more specialization into their work and more effort into selecting best-in-class risks.

“Another trend which has had a massive impact in the past year or so is capacity management,” Cellura told Insurance Business. “In most cases, when people talk about capital being deployed in the marketplace, they’re talking about short-tail lines like property and whether they should use capital to bet on the weather. That’s not what I’m talking about when I refer to capital management. What I’m talking about is the deployment of an insurer’s capacity and the amount of limit they’re willing to provide on risks. Historically, it has not been uncommon for the multinational players with big market share to provide insurance limits to their customers in the range of $50 million to $100 million on a risk. So, a company might have found itself with $200 million of exposure on a given account, through its various products. As part of this renewed discipline in capacity management, and this drive to improve underwriting quality, the larger players have really cut back on doing that.”

Rather than putting $50 million to $100 million of limit on risks, many of the key casualty insurance players in North America have reduced their exposures to more like $5 million or $10 million of limit on given risks, according to Cellura. Insurance advisors are then building up the insurance towers and tranches with smaller slices of coverage, which are more manageable for the carriers.

“A third trend we’ve seen from an underwriting perspective is around what we call sustainability,” said Cellura. “When you’re in the long-tail casualty business, it’s imperative for insurance providers to stick around and be healthy so that you can deliver on your promises later. You need to be sustainable. What that translates to is good underwriting discipline, capacity management, and also making sure you’re being paid a premium that’s in line with the risk that you’re incurring. I think the industry has lost its way a little bit over the last 10-years or so in terms of pricing risks appropriately. We haven’t kept pace with the risk environment, but the market is correcting rapidly.”