The global reinsurance market has experienced notable changes in recent years, with many reinsurers reducing their property exposures, contributing to hard market conditions.
In contrast, casualty reinsurance capacity has remained stable and, in some areas, expanded, particularly in workers’ compensation. Casualty reinsurance has played a central role in risk transfer for primary insurers, providing financial support amid large claims.
However, shifting dynamics, particularly in the US, have reshaped the sector. A key factor has been adverse reserve development, largely driven by social inflation, which has altered the underwriting environment.
A recent AM Best report highlighted that US reinsurers with casualty reserve portfolios seeing rate increases of 8%-10% are not keeping pace with loss cost trends. Markets implementing 15%-20% rate increases may be in a better position to manage these challenges.
In early 2024, reports indicated that casualty reinsurance renewals were characterized by sufficient capacity and market discipline. While some reinsurers advocated for adjustments to address economic and social inflation, outcomes generally reflected careful underwriting based on individual portfolio performance.
However, by February 2025, concerns emerged regarding the adequacy of rate increases in the US casualty reinsurance sector. AM Best noted that reinsurers implementing 8% to 10% rate hikes were not keeping pace with rising loss costs, suggesting that more substantial increases might be necessary to maintain financial stability.
Social inflation remains a major influence on casualty loss trends, with legal and litigation costs continuing to rise. Negative social sentiment and evolving legal interpretations have added further uncertainty to the casualty market.
Social inflation, which refers to rising claims costs due to increased litigation, larger jury awards, and expanded policy interpretations, continues to pressure insurers. Legal advertising spending has doubled since 2013, and litigation funding is expected to approach US$31 billion by 2028, according to AM Best.
These factors raise concerns over whether premium rate increases will be sufficient to keep up with loss trends. Additionally, broader economic inflation remains a concern for casualty insurers, with wage and health care costs continuing to rise even as overall inflationary pressures have eased in some regions.
Casualty reinsurers have responded to these trends by strengthening reserves to address higher-than-expected claims costs. Many companies have faced adverse reserve development, requiring adjustments to their financial positions.
Most casualty reinsurance is structured through quota share agreements, which means reinsurers rely on ceding insurers to implement measures that mitigate risk. Reinsurers themselves have limited options to address deteriorating accounts directly.
According to AM Best, reinsurers have been evaluating their reserve adequacy amid these pressures. In 2024, several global reinsurers reported reserve strengthening to offset adverse development, and some signaled plans to scale back casualty exposures in upcoming renewals.
Despite this, the January renewal cycle closed with ample capacity, with no widespread movement toward a hard market or significant shifts in terms and conditions. Unlike the property market in previous years, casualty reinsurance has not experienced the same urgency for pricing adjustments. Investor sentiment appears to be a driving factor in maintaining the current level of capacity.
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