Casualty comes back to bite

Casualty comes back to bite

Injured man comes back to bite | Insurance business America

Analysts expect there will continue to be setbacks in full-year results

Insurance News

By Jen Frost

Casualty insurance has impacted insurers’ results in 2023 as insurers face negative reserving pressure in a post-pandemic situation.

It is unlikely that the shortage will be limited to insurers that have already reported. Analysts say other insurance carriers will likely face a costly rethink.

Markel, AXIS Capital and Selective Insurance have not yet fully recovered from post-earnings drops that followed reservation updates.

Selective, which had negative net liability development of $10 million in the fourth quarter, increased general liability reserves to $55 million.

It remains to be seen how other insurers plan to apply their philosophy to revising provisions. Some, but not all, will take an “ultra-conservative” approach, AM Best senior director Sridhar Manyem told Insurance Business.

The pandemic is increasing pressure on victim reservations

The impact comes at a time when insurance companies are grappling with the impact of the pandemic on the long-tail business.

Inflation, claims costs, medical inflation, supply chain impacts and cyber risks have added pressure.

Insurers have struggled with poor pricing in recent years, with commercial motor liability insurance and directors and officers (D&O) proving to be weak points.

Commercial vehicle results experienced deterioration in the first three quarters of 2023. It is still too early to say to what extent the unfavorable development of reserves has been contained, said analysts at AM Best.

D&O prices, which have weakened since then, only increased in the second half of 2020 as insurers rushed to deal with a decade of adverse developments and results.

Concerns about historical pricing and reservations for liability insurance may not be new “news,” as Chubb CEO Evan Greenberg put it to investors last August, but insurers are now feeling the strain.

Chubb itself recorded unfavorable auto and surplus casualty reserves development of $55 million in the third quarter of 2023.

Anti-business bias manifests itself in social inflation as litigation funding increases pressure

This all comes as insurers struggle to get to grips with the anti-business bias that has paved the way for social inflation in the courts.

Court delays related to the coronavirus crisis have caused anger as lawsuits remain pending and the number of nuclear verdicts increases.

“The longer the cases stay open, the more subject they are to the verdict of a jury, which then sets a precedent for everything else in that jurisdiction,” said Christopher Graham, senior industry research analyst at AM Best. “Once you… [for example] With this $5 million verdict, no plaintiff’s attorney will settle for less.”

Photo credit: US Chamber of Commerce Institute for Legal Reform, Nuclear Verdicts 2022 report.

Some investors have found that supporting legal action can provide better returns than more traditional capital markets routes. You could lose if a case doesn’t go the plaintiff’s way, but that hit-and-miss volatility tends to offset itself with a large award, Graham said.

Some states have moved to enforce greater transparency and regulation in the area of ​​third-party litigation funding (TPLF); However, their efforts have not yet had a dampening effect.

In a recent blog, Gutterman warned that liability provisions will continue to be a drag on earnings in the coming years.

A senior brokerage executive has questioned insurers’ ability to stick to their version of fair pricing going forward.

“I do not think that you [insurers] “They will be able to get the prices they want or think they need, which is a nice way of saying I would be surprised if you saw significant upward pressure on liability prices,” J. Powell Brown , Brown & Brown CEO, told investors during the brokerage’s fourth quarter 2023 earnings conference call.

Still, there is some “optimism” in the industry that a similar negative development to 2023 can be avoided through 2024 and beyond, David Blades, analyst at AM Best, told Insurance Business.

Do you have an overview of the challenges in accident reservation? Leave a comment below.

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2024-02-08 15:48:15