The casualty reinsurance market is showing resilience despite ongoing challenges like social inflation, reserve uncertainties, and increased competition from insurance-linked securities (ILS) capital. Bob Forness, CEO of Bermuda-based MultiStrat, shared insights into the current state of the market and its future outlook.
Social inflation continues to be a major hurdle. This trend is driven by factors such as litigation funding, expanding liability rules, and growing “nuclear verdicts” — extremely large legal awards. While primary insurers have managed to increase rates by mid-single digits, reinsurers higher up face more volatility and risk. Forness noted that reinsurers are reacting by raising attachment points, tightening contract terms, and demanding more transparency on claims from their clients.
Some lines of casualty insurance, like commercial auto and professional liability, have seen double-digit rate increases. Meanwhile, areas like workers’ compensation are experiencing some pressure due to new capital entering the market. Despite some talk of a softening market, Forness points out that rates have stayed firm overall. The competition is selective and mostly comes from new investors who are confident in certain product structures. Still, reinsurers are holding firm on underwriting standards and asking for multi-year commitments and detailed data reporting to manage long-term risks.
Reserve strengthening has played a big role in recent years. Several insurers boosted reserves for policies dating back to 2019 through 2021 because of uncertainties caused by pandemic delays in claim reporting. Forness believes much of this reserve work has stabilized after corrective steps during 2023 and 2024, but he cautions that the long-tail nature of casualty insurance means vigilance is essential. Losses often appear several years after policies are sold, so reinsurers need to stay alert.
One significant development is the rise of casualty ILS. Unlike property ILS, which is well established, casualty ILS is still new but growing quickly. MultiStrat is active in shaping these casualty ILS products by turning traditional casualty portfolios into investment opportunities. Forness highlighted three types of new players in this space: traditional reinsurers launching sidecars, managing general agents (MGAs) creating their own capital vehicles, and independent collateralized reinsurers like MultiStrat working across multiple deals.
Looking ahead, Forness expects reinsurers to become even more crucial in global casualty risk sharing. Economic uncertainty and geopolitical risks are pushing more demand for long-term risk transfer. The expanding role of MGAs in casualty distribution adds another layer to this growth. He emphasized that the market has room to grow but only if reinsurers maintain discipline, expertise, and good partnerships. Without those, firms risk falling into pitfalls.
In short, the casualty reinsurance market is adjusting but remains steady. Challenges like social inflation and reserve issues are real, but careful risk management and evolving capital sources are helping reinsurers stay strong and ready for future opportunities.