Rising litigation costs pressure casualty reinsurers on reserves

Social inflation remains a key driver of casualty loss trends, an analyst said.

Rising litigation costs and higher jury awards are driving financial strain in the casualty reinsurance sector, prompting some carriers to strengthen reserves and face tighter margins, according to a new AM Best report.

The report, "Casualty Reinsurance Capacity Remains Plentiful Amid Concerns," states that whilst reinsurers maintained ample capacity during the January 2025 renewal season, the casualty segment could face an availability crisis if interim measures are not taken. 

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

Social inflation—driven by increased litigation, higher jury awards, and broader policy interpretations—has led reinsurers to reassess pricing models and reserves. 

Many global reinsurers strengthened reserves in 2024 to address adverse development.

AM Best’s analysis of publicly traded reinsurers over the past 20 years found that firms with higher property exposure saw lower average stock price increases than those with greater casualty allocations, according to senior financial analyst Guilherme Simoes.