What liability reinsurance covers

Liability or casualty reinsurance protects insurers that write policies paying for injury or damage to third parties and related defense costs. The main classes are general and products liability, commercial and personal auto liability, workers' compensation and employers' liability, professional liability (errors and omissions, medical malpractice), directors and officers, umbrella and excess liability, and increasingly cyber. The defining feature is the long tail: claims may be reported and paid many years after the policy year.

Common structures

  • Quota share: widely used for growth, capital relief and new casualty programs, including business written through managing general agents.
  • Per occurrence excess of loss: caps large single claims, with several layers on umbrella and excess books.
  • Clash cover: responds when one occurrence triggers several policies, for example a product failure affecting many insureds or a multi-vehicle accident.
  • Workers' compensation catastrophe excess: protects against many employees injured in one event.
  • Retrospective covers: loss portfolio transfers and adverse development covers protect against reserve deterioration on past years.

Occurrence and claims-made

Original policies may be written on an occurrence basis (the injury must happen during the policy period) or a claims-made basis (the claim must be made during the period). Reinsurance must align with that trigger, otherwise the cedent can face gaps or overlaps. Treaties also define whether they attach on a risks-attaching or losses-occurring basis.

Inflation and social inflation

In the US, casualty reinsurers focus heavily on claims inflation, including "social inflation", a term for rising claim costs driven by litigation trends, large jury verdicts, litigation funding and broader interpretations of coverage. Because US casualty treaties seldom include index clauses, reinsurers price this trend directly and scrutinize cedents' reserving. In Europe, many liability excess treaties use index (stabilization) clauses to share inflation between cedent and reinsurer.

Extra-contractual and excess-of-limits exposure

US insurers can be held liable beyond their policy limits for bad-faith claim handling, through extra-contractual obligations (ECO) or excess of policy limits (XPL) awards. Whether and how much of these amounts the reinsurance covers is a key negotiation point. Laws differ by state, so the cedent's claims practices are reviewed closely.

International market

Bermuda reinsurers and global groups in Europe are major casualty writers, often on quota shares and higher excess layers. Lloyd's syndicates lead many professional lines, D&O and specialty liability programs. In Asia, casualty reinsurance demand is growing with liability awareness and regulation, while motor liability remains a large class in many markets. Casualty treaties typically renew on January 1, with others mid-year.

What reinsurers ask for

  • Loss triangles by accident or underwriting year with paid and incurred data
  • Limits profile, class mix and attachment points of original policies
  • Large-loss lists with claim descriptions
  • Claims handling and reserving philosophy, including use of outside counsel

Working with Polis Re

Polis Re helps casualty writers and captives prepare data and compare structures, with placement through licensed reinsurance intermediaries and authorized reinsurers. For primary cover see general liability and professional liability, or request support.