Increasing litigation costs and higher jury awards continue to financially pressure the casualty reinsurance segment, forcing reserve strengthening measures for some carriers and prompting narrower margins, according to a new AM Best report.

While reinsurers continued to provide ample capacity through the recent January 2025 renewal season, there is potential for the casualty segment to encounter an availability crisis in the absence of interim actions to offset some pressure points, according to the Best’s Market Segment Report titled “Casualty Reinsurance Capacity Remains Plentiful Amid Concerns.”

A recent panel discussion during an AM Best briefing on reinsurance renewals indicated that U.S. reinsurers with a casualty reserve portfolio that gain 8-10 percent in rate increases won’t keep pace with loss cost trends.

Rather, markets that push for 15-20 percent rate increases may be the ones that overcome these challenges, the discussion revealed.

“Social inflation remains a key driver of casualty loss trends on past years and continues to create uncertainty across the casualty landscape amid negative social sentiment,” said Dan Hofmeister, associate director, AM Best.

The reference relates to the rising costs of insurance claims due to a combination of factors such as increased litigation, higher jury awards and a broader interpretation of policy coverage.

These factors have placed substantial pressure on reinsurers, the report stated, forcing a reassessment of their pricing models and reserve adequacy.

In 2024, many global reinsurers reported reserve strengthening efforts to combat adverse development.

In 2022, a lack of investor willingness to absorb increased property market volatility led many reinsurers to reduce their dedicated capacity for the related lines of business, the report added. Much of that capacity was redirected into casualty lines, which the equity markets appear to favor, the AM Best report noted.

“We examined publicly traded reinsurers’ stock prices over the past 20 years,” said Guilherme Simoes, senior financial analyst, AM Best. “We found that reinsurers with higher allocations to property lines saw a lower average yearly increase in stock prices compared with those with higher allocations to casualty lines.”

The report notes that reinsurance market reported adverse reserve development on prior casualty years throughout 2024, and the problems are not anticipated to slow in the near term.

The casualty segment differs from the property in that it is more complex and cannot be resolved through simple changes to attachment points or underlying terms, the report explained.

Underlying business will continue to deteriorate as social inflation drives up loss costs, the AM Best report added.