Adverse development for past-year casualty losses is shaping the environment for reinsurance buyers as they head toward Jan. 1 renewals.

While reinsurers have reunderwritten some poor-performing accounts, they remain cautious.

The underwriting years 2015 to 2019, when pricing was soft, are driving the most concern, but adverse development — when underwriters have to add to loss reserves — continued through 2024, some say.

“One of the main discussion points for casualty business continues to be around adverse development,” said Beatrice Morley, London-based global head of casualty and head of international reinsurance for Aspen Insurance.

Pinpointing future performance remains challenging, given the loss development in recent accident years and the moving target of loss trends, said Chirag Shah, New York-based global head of casualty for Gallagher Re, a unit of Arthur J. Gallagher & Co.

Some years, mainly 2015 through 2019, are still showing adverse development, and cedents’ strategies for managing more distressed businesses are key to reinsurance renewal negotiations, Ms. Morley said.

“One of the clear differentiators has been how a company is able to articulate its strategy on how it’s able to manage the portfolios going forward, how they’ve remediated it, what lines of business they’ve exited and what they’ve done with their limits,” she said.

“In casualty, it’s about differentiation,” said Jill Beggs, Warren, New Jersey-based executive vice president and CEO of reinsurance for Everest Group.

Providing detailed data such as rate change methodology, policy attachment points and limits on individual claims allows each portfolio to stand on its own merits, she said.

Underwriting discipline imposed in the past few years appears to be working for reinsurers, said Jaimie Hunter, New York-based senior broker with Lockton Re, the reinsurance business of Lockton.

The market is in a “wait and see” position in which most participants think the changes in rates are covering loss trends, she said.

The outlook, though, remains unclear. “The thing that is an unknown for everybody, clients and reinsurers alike, is: Where does the trend go from here?” Ms. Hunter said.

There is some evidence that adverse loss development continued in 2024, said Emily Apostolides, New York-based head of casualty, North America, for Gallagher Re.

“We saw a lot of prior-year development over the last few years; towards the end of 2024 there was quite a bit that came through,” she said.

Reinsurers are making sure that underlying pricing is on pace with loss trends, particularly in the excess casualty and umbrella lines, said Christopher Ross, New York-based managing director, New York casualty treaty manager, for Guy Carpenter & Co.

“Excess casualty markets continue to draw rate increases needed to stay above loss trend,” said Greg Schiffer, Stamford, Connecticut-based North American CEO, reinsurance, for Axa XL.

“We are also continuing to see some adverse loss development come through, including in some more recent years,” he said. “We expect the casualty market to stay fairly consistent.”

Casualty capacity for Jan. 1 renewals should be sufficient, Mr. Ross said.

New capacity has entered the market over the past five years, compensating for reductions by reinsurers that have repositioned their portfolios, he said.

“There’s plenty of capacity there. There’s enough capacity out there to get these deals done,” Ms. Apostolides said.

Some reinsurers are cautiously shifting their stance toward casualty, according to Mr. Shah of Gallagher Re.

“There is optimism about where it’s going,” he said.

Several reinsurers have indicated they want to grow their business with key cedents, Ms. Apostolides said.

“The messaging has been pretty firm in the last couple of years around needing to see improvements in pricing, needing to see structures change; that seems to be shifting in tone. It seems like the market is slightly more optimistic, cautiously optimistic around where things may be headed.”

After traditionally focusing on property, alternative capital eyes liability exposures

Alternative reinsurance capital, such as catastrophe bonds, sidecars and collateralized reinsurance, has traditionally targeted property risks, but more capital providers are looking at the casualty side of the business, according to sources.

Activity has increased in the alternative capital sector for casualty reinsurance, according to Emily Apostolides, New York-based head of casualty, North America, for Gallagher Re, the reinsurance business of Arthur J. Gallagher & Co.

The broker has been having many conversations with cedents “both to educate and also potentially explore something like a sidecar,” she said.

“A lot of cedents are interested in exploring sidecars. A lot of investors are interested in better understanding the casualty business,” Ms. Apostolides said.

Christopher Ross, New York-based managing director, New York casualty treaty manager, for Guy Carpenter & Co., also sees increased activity around alternative capital in the casualty market.

“It is becoming a discussion topic as another source of capacity for clients to access, similar to what they do with property and catastrophe bonds,” he said.

There is a lot of potential capacity to be deployed, Mr. Ross said.

Among other deals, last year Aspen Insurance and PIMCO Investment Management formed Pando Re, a Bermuda-domiciled collateralized insurer and reinsurer focused on casualty risks. In August, Enstar Group launched its first casualty reinsurance sidecar, Scaur Hill Re.