COVID-19 is a catalyst for casualty market hardening: BRIT
Industry’s contingency losses likely to worsen, according to specialty carrier’s senior underwriters.
By Garry Booth, Contributing Editor
London market specialty carrier BRIT goes into renewals smarting from the effects of the pandemic, with COVID-19-related losses driving an increase of 15.7 percentage points in the insurer’s first-half combined ratio and bringing the overall figure to 106.7%.
But BRIT’s casualty treaty team expects the slo-motion catastrophe will be a catalyst for change in the market and will create a sustainable pricing environment.
“Contingency [event cancellation] has been a significant driver of losses in casualty treaty as has medical expense. BRIT has a broad risk appetite and it is the pecuniary classes that have been hit,” Matt Wood, BRIT’s senior casualty treaty underwriter, told Reactions in a video call.
BRIT’s experience is not unique, according to Simon Bird (pictured), group executive underwriter: “Contingency reinsurance will have been a disaster for the market. There may well be litigation to come, especially over event definition,” he predicts. “There is no binary definition in contingency for defining a catastrophe event, and insurers are now seeking to find the most efficient ways of collecting claims and regardless as to whether they conform with the intention of the wording.”
Commenting on the broader casualty renewals picture, Wood said that the market was already turning at 1 January 2020 and that COVID-19 is further fuelling a much-needed return to profitability: “The casualty market has seen some large losses in the last few years, such as the NiSource gas explosion, the MGM Las Vegas shooting, the BHP Samarco dam collapse and the opioid crisis, plus rising social inflation. Meanwhile the prospect of the Tokyo Olympics being cancelled, which would be a further massive net loss as treaties are already exhausted, is looming large.
“Now there is a ‘signposted’ global recession ahead, which will inevitably produce a huge increase in opportunistic litigation and loss frequency, particularly PI and commercial D&O claims.
“Even though COVID-19 is not a big loss driver, it has focussed the market,” adds Wood. “The momentum is there to return the market to profitability after four years of soft market.”
Reinsurance demand and supply
Harder market conditions at the primary level have not yet prompted cedants to rethink their reinsurance buying, according to Wood: “Despite the potentially higher margins on their underlying business, cedants are essentially hunkering down and staying with their usual reinsurance partners. They’re not moving away from quota share arrangements to a more risk taking position with excess of loss structures.”
Commenting on the reinsurance supply side of the equation, Bird doesn’t expect to see an influx of capacity into casualty reinsurance.
“Casualty reinsurance supply could even reduce, and I expect BRIT to see more opportunities as a result. We see the number of leaders in the market shrinking – but we have the ambition to grow in 2021,” he said. “There will be start-ups in the wider market but the barriers to entry in casualty reinsurance are very high: casualty reinsurance buyers are the most discerning of all reinsurance buyers and are very picky indeed.”
BRIT’s first-half underwriting loss of $55.0m and combined ratio of 106.7% included losses of $156.2m, resulting from COVID-19-related claims ($127.9m), the Nashville tornadoes ($13.3m) and U.S. civil unrest ($15.0m).
Gross written premiums for the period were $1.28bn (H1 2019: $1.21bn), a 5.9% increase (6.5% at constant FX rates). Premium rate increases were 8.2% (H1 2019: 4.3%).
