Twenty years ago, an insurance carrier’s use of reinsurance products like loss portfolio transfers and adverse development covers waved a red flag, signaling potential concerns over the company’s loss reserves to pay future claims. While this is no longer the case—the products have become a common capital management tool—a few other flags are unfurling.

Executive Summary

There's quite a bit going on in the world of legacy reinsurance given deteriorating casualty loss reserves, rising concerns over newer liabilities like forever chemicals, and widening bid-ask spreads for retroactive covers, to mention a few. Veteran Journalist Russ Banham spoke to analysts and reinsurance brokers to paint a picture of the state of the market.

One is growing concern over a range of liability losses in the years preceding the COVID pandemic, resulting in billions of dollars in loss reserve charges by insurance carriers and reinsurers to pay these future claims. Another is the combination of social inflation (juries delivering so-called nuclear verdicts), economic inflation and litigation finance to fund lawsuits. An April report by AM Best stated that the growth in litigation funding firms is creating “distortions in payment patterns” contributing to reserve risk pressures.

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