For people in the industry who read insurance trade journals often, it’s hard to ignore news stories about casualty reserving trends. In fact, one could argue they are front-page news most days. However, the data and the narratives can leave the reader with some uncertainty around the message. Are the extremely conservative actions of certain carriers a canary in the coal mine for darker casualty days ahead? Or does the data, insurer results and years of underwriting discipline lead the reader to believe reserving actions are a herring attempting to create a misleading narrative?
Casualty, and more specifically the general, automobile and umbrella/excess liability lines are experiencing continued stress in the marketplace. As has been widely reported, social inflation, legal system abuse, and lawsuit funding are leading to big increases in severity across liability lines. The pace and frequency of large settlements and verdicts have given pause for many carriers as highlighted by recent reserve bolstering at the end of 2023.
This reserve bolstering continued more broadly throughout 2024, with the P&C industry increasing liability reserves to address higher than expected claim costs and loss trends. However, according to S&P Capital IQ the 2024 calendar year reserves improved $2.6 billion on positive development. While greater than the 2023 number of $1.5 billion, the 2024 profit on release of prior year reserves falls short of the $7.1 billion average over the previous five calendar year results preceding 2023. The period during and immediately after the COVID pandemic had a slowing impact on certain liability claims. But when looking at the calendar year periods 2014-19, the broader P&C industry averaged $8.2 billion of positive development in each calendar year.
According to the same research, when drilling down by certain lines of coverage, “other liability- occurrence” had $10.3 billion of net adverse development in calendar year 2024. It’s important to note this represented an acceleration from the net adverse development of $4.7 billion for “other liability – occurrence” business in calendar year 2023
As the chart below shows, in the past decade, 2018 represents the high-water mark of net favorable reserve development at $12 billion. Growing concern now centers on the trendline, with indications that the industry may be approaching a shift toward less favorable reserve development, despite a slight improvement in 2024 from the prior year. For reference, 2005 represented the last calendar year with net adverse reserve development for the industry.
Let’s look at the auto and other liability lines accident year charts for a deeper dive below. The charts analyze initial loss ratio estimates, established at the end of each accident year, vs. ‘developed’ loss ratios — revised 10 years after (or the latest available) each of the respective accident years for the 1996–2024 periods for both automobile liability and other liability, respectively. You will also note the cumulative impact to profit/loss flowing from these lines subsequent to each initial loss estimate depending on the loss development.
For both automobile and “other liability-occurrence” lines, the data suggest that 2009/2010 marked the last accident year period where developed loss ratios ultimately improved upon initial estimates, resulting in positive and profitable reserve development. Since then, both lines have experienced adverse development, with actual loss ratios exceeding early estimates. However, periods since 2021 have shown less unfavorable development relative to the initial outlook. (Note: these more recent accident years remain relatively green and are still subject to further development — in either direction.)
Up until this point, we’ve highlighted concerns around the P&C industry’s net reserve development in recent calendar years, driven by the liability lines’ lack of performance. Yet, 2024 still showed favorable developments outweighing the adverse actions in the aggregate. Why? Well, let’s discuss the important part that workers’ compensation is playing in this dynamic P&C landscape.
According to S&P Capital IQ, workers’ compensation had a net positive development of $6.4 billion in calendar year 2024, accelerating slightly from $6.0 billion in the 2023 calendar year.
To provide additional insight — similar to the preceding liability analysis — we’ll now turn to accident year data to better illustrate the underlying performance and continued contribution of the Workers’ Compensation line.
Again, the above chart analyzes initial loss ratio estimates vs. ‘developed’ loss ratios for the 1996–2024 accident year periods. Unlike the automobile and other liability charts, since 2010, workers’ compensation has seen loss ratios develop favorably compared to initial estimates. This inverse relationship to liability has led many industry analysts to point toward workers’ compensation as “the gift” that’s balancing the development of other casualty lines.
When reviewing the 2024 Schedule P NAIC Reserve data, we note that the auto liability, other liability, products liability and workers’ compensation lines reflect roughly $123 billion of unpaid industry reserves for the 2024 accident year. Of concern, workers’ compensation reflects only 20.8% of the total number, while the three liability lines reflect the 79.2% balance. Other liability alone accounts for more than 50% of the total projected calendar year reserves. If the industry continues to miss the mark on liability, how much longer can workers’ compensation save the day?
Another relevant data point is annual net premiums by line of business. We’ve highlighted the dynamic around workers’ compensation reserve releases compared to other liability reserve inadequacy. According to a WTW analysis of S&P Capital IQ data, other liability reflected just over 10% of the 2024 industry premiums (third largest percentage behind Private Auto and Home/Farm owners). However, the percentage of the overall premium represented by workers’ compensation has shrunk from 8.7% in 2015, to below 5% in 2024. In short, workers’ compensation has shrunk its overall premium share by approximately 43% since 2015, while other liability share of new premium has grown over that same period of time. With such a significant drop in workers’ compensation premiums relative to other liability, what impact will this have on behavior going forward?
Now that the Canary case has laid the groundwork for P&C “bears,” lets discuss the Herring case for the “bulls.” According to AM Best, the U.S. P&C industry turned an underwriting profit in 2024, the first such year since 2020.
It’s important to clearly highlight the more disciplined underwriting behavior in the liability space attached to accident years 2020-23. Consistent rate increases, stricter terms and conservative limit management are all tools’ carriers focused on during this ‘hard-market’ period. Elevated interest rates during this time should also be considered. The long-tail nature of casualty dictates that the books will need to mature before the results of this discipline can be fully measured.
The charts below reflect quarterly rate change statistics from the WTW Q4 2024 state of the market report (note: These rate changes don’t account for the structural shifts that have occurred over the same period — such as reduced limits and increased attachment points — further amplifying the financial impact on insureds.).
Source: Willis' quarterly state of the market report
The general liability chart shows some modest slowing rate increases in Q4 2024. It’s important to note that these rate increases have been compounding over time. For example, if you calculate the cumulative Q4 rate changes for the chart above, this line has experienced a 24.68% increase in the aggregate since 2020 alone.
Source: Willis’ quarterly state of the market report
The automobile liability chart shows continued increases starting in 2020. While the pace of increases has slowed somewhat, we’re seeing a continued uptick in 2024. In fact, according to the same report, Q4 2024 marked the 34th consecutive quarter of automobile liability rate increases on average.
The following chart shows how the umbrella and excess liability market has responded to escalating claim severity through additional underwriting discipline. Corrective actions include both meaningful rate increases and a substantial reduction in deployed limits. Specifically, lead umbrella limits have contracted significantly — from $20 million in 2015 to $5 million in 2024 — while excess limits have declined from $40 million to $10 million over the same period. These shifts underscore a robust recalibration in market appetite and risk tolerance.
Source: Willis generated graph using various sources as noted below
The liability limits in the graph represent typical market maximums rather than simple averages. This means:
For rate changes, the values represent a weighted average of market rate movements, which is a common approach used by:
Despite the considerable reserve strengthening efforts undertaken in recent years, the casualty insurance industry continues to produce favorable underwriting results. This performance is particularly notable given what we know has been a market punctuated by economic volatility, ongoing social inflation and an increasingly litigious environment.
Perhaps several years of rate uplifts, more disciplined underwriting practices and conservative limit management have helped insurers develop more stable portfolios. As a result, many lines have exhibited marked improvements in their loss ratios, as evidenced by the most recent Schedule P data, which includes incurred losses, defense and cost containment expenses (DCC) and unallocated loss adjustment expenses (ULAE):
Collectively, these improvements are suggestive that recent underwriting strategies — centered on rate adequacy, exposure management and reserving prudence — have borne fruit. However, these gains must be carefully monitored and protected amid shifting market dynamics.
The overall casualty market continues to enjoy healthy capacity, with few signs suggesting a mass withdrawal of insurers. Instead, we’ve seen most carriers opting for targeted rate increases and selective limit deployment, reinforcing the idea of underwriting discipline rather than retreat.
While adequate capacity in terms of casualty insurers remains available, it’s become increasingly strategic and conditional, with underwriters placing greater emphasis on industry class, risk quality, jurisdiction and historical claims performance. Insurers are becoming more sophisticated in how they allocate capital, focusing on achieving sustainable returns rather than chasing premium volume.
The question, however, remains as to whether this stability in available capacity will serve as a solid foundation for the industry to replicate recent profitability in the coming years.
The industry is navigating several concurrent trends that will shape future performance:
In this environment, even with emerging tort reform developments, a conservative approach to reserving is warranted. The need for robust reserve buffers is underscored by the inherent uncertainty in forecasting long-tail claim costs, particularly when external pressures, as have been described above, are amplifying the volatility.
The casualty insurance industry has shown considerable resilience, buoyed by disciplined underwriting and a proactive approach to risk and capital management. Yet, as the sector confronts continued social inflation, evolving litigation dynamics and broader economic volatility, this resilience faces a real test.
Which brings us back to the initial question as to whether the recent wave of reserve strengthening is an early warning signal of deeper, systemic loss development challenges (canary in a coalmine)—or merely an overly conservative reaction following years of underpricing (red herring)? The answer will become clearer in the years ahead. What is certain, however, is that sustained profitability will hinge on the industry's ability to adapt through continued investment in data analytics, rigorous claims management and forward-looking reserving practices. Those who navigate this uncertainty with agility and insight will be best positioned to achieve durable underwriting success in 2025 and beyond.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
