Conditions in the global reinsurance market are also leading reinsurers to E&S carriers with stability and predictability in their casualty books, amid the search for exposures subject to minimal natural catastrophe risk volatility.

The tradeoff between property-catastrophe reinsurance and casualty reinsurance was very much a factor during the latest two Jan. 1 renewal seasons. With more frequent and severe weather events, property-catastrophe reinsurance has experienced definitive pricing increases, particularly at the Jan. 1, 2023, renewal date. Nevertheless, reinsurers hesitate to allocate more capital to these exposures because the question of whether primary insurers achieved technical rate adequacy for these risks is still unsettled.

With casualty lines also being affected by economic and social inflation trends, reinsurers remain skeptical about future adverse loss reserve development and its potential effects on calendar year profitability of general liability, commercial auto liability and public D&O liability lines of coverage.

For casualty books of business, reinsurers may need to be more cautious of systemic risks within their portfolios; for example, cyber or D&O-related claims emanating from private companies going public via special purpose acquisitions companies (SPACs) as an alternative to the initial public offering (IPO) process.

SPACs are shell companies formed to raise capital through an IPO with the sole purpose of acquiring an existing private company. The D&O sector saw a surge in SPAC-related activity in 2021-2022, as formations of these entities provided companies a speedier and less complicated way to move from being privately held to publicly traded. As the 2021-2022 economic environment was seen as favorable for companies going public, many were formed through SPACs, and the popularity of SPACs created additional D&O liability exposures given the increased regulatory scrutiny and potential for shareholder lawsuits. Once the SPAC has successfully raised the needed funds and has identified a suitable private company in which to merge, the merger phase concludes the purpose of forming the SPAC and is therefore referred to as the de-SPAC phase. The merged entity becomes publicly traded through the already listed SPAC. With the softening D&O insurance market, its subset, the SPAC D&O market, has softened as well.

Nanoplastics in packaged food and bottled water are an emerging and increasingly growing concern, and if the worst fears are realized, could lead to large losses similar to asbestos claims. “Forever chemicals” (i.e., per- and poly-fluoroalkyl substances, or PFAS) are another looming possible mass tort. Although it is still in question to what degree these two potential large torts will lead to insurable claims and the possibility of class action suits against the manufacturers and users of the products, moderate- or worst-case scenarios could be substantially costly for the insurance industry.

Since multiple insurers could be affected by these issues and create large losses on a reinsurer’s books, reinsurers continue to place a heavy focus on underwriting discipline.

With newly emerging or evolving exposures expanding risks associated with commercial businesses, the surplus lines market represents a critical component of the property/casualty marketplace because of the resulting, higher-risk insurance needs of many companies. Customized solutions offered for such exposures are the hallmark of surplus lines companies.

Reinsurers tend to look favorably upon the proven track record of well-established surplus lines companies that have demonstrated the ability to effectively develop and price customized insurance coverages needed to address these higher-risk exposures.