Moody’s insurance executives have identified U.S. casualty reserve development as the biggest wildcard for reinsurers in 2025, according to analysts at TD Cowen.
Based on conversations with Moody’s regarding their property & casualty outlook for 2025, TD Cowen stated that the rating agency anticipates the reinsurance industry’s recent strong profitability will continue in 2025.
“While property catastrophe reinsurance pricing took a step down at 1/1 renewals, it remains attractive on an absolute basis, following strong cumulative increases in recent years,” TD Cowen said.
The firm continued, “Additionally, the higher attachment points that reinsurers pushed through in 2023 have led to a meaningful improvement in industry profitability and the industry appears to have largely held the line on this in 2025.”
That said, TD Cowen noted that not dissimilar to primary commercial insurers, the “biggest wild card” for reinsurers is U.S. casualty reserve development.
The firm’s analysts continued, “Bottom line, our discussion with Moody’s largely re-affirmed our views on the sector, which we recently laid out in our 2025 P&C industry outlook. While we have a somewhat mixed view of the sector (partly given casualty reserve concerns), we favour the specialty, personal lines and brokerage sub-sectors.”
In further conversations with TD Cowen, Moody’s said it expects commercial lines carriers to continue posting combined ratios in the upper 90s, as they have done for the past few years, as carriers continue to benefit from years of rate increases, despite social inflation concerns and declining rates in some lines.
Moody’s additionally underlined that loss trends for casualty remain elevated as litigation costs continue to rise.
The rating agency reportedly added, “The phenomenon of ‘social inflation’ including rising jury awards, an increased propensity to sue, and a generally more aggressive plaintiff’s bar remains a concern, and it’s unclear whether casualty pricing is keeping pace with loss cost trends.
“For these reasons, Moody’s is cautious about the adequacy of casualty reserves. For accident years 2022, 2023 and 2024, some insurers are likely not factoring in enough social inflation, especially for troubled lines. Still, adverse development in these lines will likely be offset by continued favourable development in workers’ compensation.”
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