BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Casualty rates steady to slightly lower


MONTE CARLO, Monaco—Property reinsurance market conditions clearly appear they'll harden further, but trends in the casualty market are a little harder to discern, suggested reinsurance industry executives at the Rendez-Vous de Septembre.

Overall, casualty lines in both Europe and North America show signs of stable capacity and pricing, but there may be some competition and even pricing decreases, executives said. One factor that may add stability to the casualty market is the desire of some reinsurers with large catastrophe portfolios to diversify into other business, they said.

On casualty lines, "it's more complex" than the property market, said Hans Rohlf, managing director and chief underwriting officer of North American treaty reinsurance at Hannover Reinsurance Co. in Hannover, Germany. "It's very much dominated by insurance carriers maintaining security requirements on reinsurers," he said. The number of highly secure global casualty reinsurers available for placements is small, "so it's relatively stable on the casualty side."

Hannover Re is concerned about cedents allowing erosion of pricing on umbrella liability coverage, Mr. Rohlf said. "We have seen some not unsubstantial reductions" in umbrella rates, he said. "On Fortune 2000 umbrellas, there's no fat anymore. Flat renewals generally mean that participants lose out" because loss cost trends further reduce their margin, he said. "Medical inflation is still there, but usually you need at least 5% rate increases" to offset it, he said.

Jacques Bonneau, chairman and chief executive officer of ACE Tempest Re in Bermuda, agreed. On casualty business outside the United States, "I don't see upward movement, and I think you'll see flat" market conditions at renewal. ACE Tempest Re, a unit of ACE Ltd., writes a broad book of international property and casualty business.

"The whole casualty market is tougher" for reinsurers, he said. "When you have rate decreases on traditional business and add (the loss cost) trend, that takes a lot out of your expected margins," Mr. Bonneau said.

"Barring any big catastrophe activity in 2006, there probably will be an erosion of pricing" for U.S. casualty risks, he said. "I like to think it will be gradual, but it's going to be tougher in the United States" to maintain casualty pricing.

David Priebe, CEO-Europe for New York-based Guy Carpenter & Co., a unit of Marsh Inc., said the overall outlook is "a very stable, flat casualty market," with some potential improvements in terms and conditions for buyers.

A stabilizing factor is reinsurers' increasing demand for access to noncorrelated business. For example, in Europe there is an increasing appetite to write nondollar-denominated business, Mr. Priebe said.

Bruce Ballentine, vp and senior credit officer at Moody's Investors Service in New York, foresees "neutral to softening" conditions in the casualty market. "People are trying to write anything but U.S. cat-exposed property business," he said. Terms and conditions appear to be holding, however, as reinsurers remember the soft casualty market of 1997-2001, Mr. Ballentine said.

As rates "come off" for property risks, reinsurers will seek to diversify into casualty, and overcapacity in those lines could cause softening, noted Seymour Matthews, managing director of reinsurance at Heath Lambert Group in London.

But it appears currently that reinsurers are being disciplined in their underwriting of U.S. casualty business, noted Matthew Mosher, group vp, property/casualty division at A.M. Best Co. Inc. in Oldwick, N.J. The real extent of that discipline will not be evident, however, for at least three to four years, he noted.

Some casualty lines, such as directors and officers coverage, are showing signs of softening, said Hans-Peter Gerhardt, CEO of AXA Re in Paris.

As well as a reduction in price, some casualty lines are seeing a broadening of coverage, he said.

Over the past few years, "casualty pricing has crept up a bit, and terms have tightened enormously," said Caroline Foulger, a partner at PricewaterhouseCoopers L.L.P. in Hamilton, Bermuda. "The market learned its lesson from 1997 to 2001" when it underpriced casualty risks and paid a steep price for doing so, she said.

While property exposures have focused the market's attention, "people don't have the same scrutiny in casualty," said Marc Grandisson, chairman and CEO of Hamilton, Bermuda-based Arch Worldwide Reinsurance Group, a unit of Arch Capital Ltd. "The market is fixed and working well, and the balance is shifting toward the insurer" at renewals.

"The U.S. casualty market conditions are still pretty good, much better than we thought they would be," Mr. Grandisson said. "People are still disciplined on D&O, and general liability is spotty but stable. I don't see pervasive changes around the industry" on casualty lines.

Casualty market conditions generally are "a little more problematic" than those in the property market, said Patrick Thiele, president and CEO of PartnerRe Ltd. in Pembroke, Bermuda.

Rates are steady or falling in most casualty lines in most areas, said Chris O'Kane, CEO of Aspen Insurance Holdings Ltd.

An important question for reinsurers looking at casualty business is, "'What is the underlying loss trend?' Because prices follow losses, pricing has been declining" since late 2003, Mr. Thiele said. "Reinsurance pricing (on casualty lines) has held up better than on the primary side" in the past few years, Mr. Thiele said. "Most of the pain in the 1990s was borne by reinsurance companies, not insurance companies," he said, referring to several years of bad loss experience in casualty business.

There is some indication that "we've improved our tools and our underwriting, which should lead to more stability," Mr. Thiele said. "I'm a cautious proponent of that, and I hope there becomes less amplitude to the swings in pricing."

"From PartnerRe's perspective, we still think we can write significant amounts of casualty reinsurance," Mr. Thiele said. "We believe virtually every line can be written. If we can evaluate and understand the risk, we can price it."