For the past five years, US casualty underwriters have driven through a broad market correction, pushing massive compound rate and compressing limits to undo some of the damage done in the decade-long soft market that came before.
The market remains fairly disciplined on both fronts, with excess casualty rates still increasing by double digits this year and large domestic insurers continuing to cut already tightly controlled line sizes here and there.
Compared to these two, there is one underwriting element that seems to have been relatively untouched over the same course of time: the attachment point for the lead umbrella.
That is worth thinking about because at the end of the day, excess casualty is a severity product. And pricing, no matter how good it gets, won’t fix that.
Also, the market has entered its seventh year of rate increases, an atypically long hard-ish cycle for US casualty. Still, there is little confidence that pricing and terms and conditions at the moment are sustainable, with evidence from 2024 Schedule P filings that recent accident years are failing to hold their loss picks.
As such, now may be a good time to revisit the fundamentals of US excess casualty and what that product was made for.
No safe attachment point
In the late 1980s, $1mn was the standard attachment point for lead umbrella in US casualty. That attachment is still around for mid and small-sized businesses, although $2mn has become more frequent over the past decade.
For large accounts, the discussions start from $5mn and occasionally deals get pushed up to $10mn.
As with rates and line sizes, attachment points in casualty ultimately depend on a variety of factors, such as industry vertical or loss experience that can make it hard to generalize.
But broadly speaking, the industry has shown less commitment to raise the base line for attachment points, compared to the collective strides it has made on rates and limits.
The one exception is auto liability, where carriers have drawn a line in the sand in the past five years saying they will not offer limits under $5mn attachments. This has resulted in a burgeoning market of auto buffers.
Auto liability has a higher frequency of large losses than other lines of casualty business. But when it comes to the severity of large casualty losses, no industry segment is immune to the aggressive plaintiffs’ bar, anti-corporate sentiment, and nuclear verdicts.
According to law firm Kahana & Feld, the median size of the top 50 US bodily injury verdicts between 2019 and 2024 doubled from $49.7mn to $98.2mn.
The yearly average recovered to pre-pandemic levels in 2022 at $48.7mn and since then showed a much steeper increase compared to the 2014-2019 trendline.
But large verdicts – which often get downsized in appeals or outside court – don’t fully represent the impact of settlements which are inflicting the real pain on carriers’ casualty portfolio.
One underwriter source said most umbrella losses he sees are between $1mn and $5mn. It’s not the occasional $25mn that hurts the book, but a “decent amount of frequency” of $1mn-$5mn settlements that add up, he said.
The rational move, then, would be increasing the attachment point by a few million dollars to attach above these frequency losses.
The competition
The reason carriers have not pushed up the industrywide threshold boils down to competition. Even if the conversation with an insured comes to a point where the client considers sharing risk down below, “all it takes is one market” willing to offer coverage to forestall this, said another carrier executive.
In most cases, the insured would take up that offer saying “I'd rather pay an extra say, 15-20 points, if I can get someone else to take it,” the source said.
That also reflects the supply-demand dynamics in the market, where capacity is challenged, especially in the lead excess, but not wildly deficient.
Sources often point to tort reform as if it’s the ultimate answer to put a stop on loss-cost inflation.
And there has been uplifting momentum this year where states like Georgia and Louisiana have followed in Florida’s footsteps. Nationwide tort reform to cover all 50 states, however, will be a much longer game.
In the meantime, carriers will have to continue searching for ways to better underwrite US casualty.
Chubb and Zurich’s initiative to lure insureds into making the jump to claims-made from occurrence was commendable from that perspective. If that bet is fruitful, every insurer will benefit from it.
Its success, however, is completely up in the air. Other carriers are unlikely to follow suit until they see a meaningful level of client take-up – which is questionable given the benefits they get from occurrence.
But there is a clear takeaway that peers can start thinking about immediately: US casualty in its current form may not be sustainable. And now is the time for the industry to look for another lever to pull.