Market Choices, Expertise Keys to Casualty and Financial Lines Success

A new analysis of the US casualty and financial lines insurance market finds wide variance between high-performing companies and those that are challenged. 

In this climate, sustainable returns depend on where insurers are writing business and the depth of their underwriting expertise in those segments, the analysis by Howden Re found. 

Howden Re noted that in recent years, headlines in the US casualty and financial lines market have become pessimistic, as adverse developments, social inflation, nuclear verdicts, and declining financial lines rates have dominated industry conversations. But, Howden Re suggested, a look at the data makes a compelling case for profitable growth. 

Howden Re's analysis of US insurers found a wide gap in the loss ratio performance of those in the top quintile of companies writing other liability coverage versus those in the bottom quintile. That gap is an opportunity reflecting differences in underwriting philosophy and risk selection, Howden Re suggested, with insurers that identify the right segments of the market potentially crafting a story of selective growth. 

"What the data shows is that outperformance in this market is the result of deliberate initiatives around portfolio construction, deep specialization, and an ability to adapt as the market evolves," Carrie Byler, managing director and head of US general casualty at Howden Re, said in the Howden Re report Finding the Opportunity: The role of expertise and risk selection in US Casualty & Financial Lines. 

"The carriers who are succeeding are making educated decisions about where the returns are," Ms. Byler said. 

Howden Re said a separate study based on the company's proprietary data showed that insurers with concentrations in small and mid-sized business and umbrella/excess insurers heavily weighted toward excess and surplus (E&S) business have outperformed. 

"The E&S casualty market itself has grown to roughly $65 billion in total direct written premium, double its size 5 years ago, and although growth is decelerating as competition and specialty-focused capital increase, the underwriting advantages of E&S remain," the Howden Re report said. 

Insurers in the space that have avoided concentrations of large entity business and have limited auto exposure also have outperformed the broader market, Howden Re said.