U.S. P&C loss reserves position at year-end 2012 were adequate and unchanged compared to 2011, according to “Property/Casualty Industry Loss Reserve Adequacy,” a special report from Fitch Ratings.

Fitch projected net loss and loss-adjustment expense reserves were between $9.0 billion redundant to $11.5 billion deficient at year-end 2012, which as a percentage of total loss reserves is between 1.4 percent redundant to 1.9 percent deficient. “This result shows a relatively similar reserve position compared with year-end 2011,” Fitch said. “The range of redundancy for recent accident years has widened modestly and the high-end estimate of asbestos reserve deficiency has increased modestly.”

According to the report, reserve adequacy estimate breakdown is as follows:

- Accident years 2003−2012: $6.0 billion to $15.0 billion redundant

- Asbestos exposures: $2.5 billion to $9.5 billion deficient

- Environmental losses: $1.5 billion to $3.0 billion deficient

- Other latent exposures: $2.0 billion to $5.0 billion deficient

Claims costs have been stable for the industry, due to low interest rates and low levels of inflation, Fitch said, and sharply higher inflation is unlikely in the near term, which reduces the potential of adverse reserve movements. Claims cost drivers, such as medical and tort-related costs, also have been stable recently, but are a potential source of volatility, Fitch said.

“Individual segments that were more heavily impacted by past competitive market conditions and the effects from the economic recession on claims trends continue to show reserve inadequacy,” Fitch said. “Workers' compensation, product liability, and commercial auto liability segments are among the weaker segments.”

Medical professional liability, personal auto liability and other liability lines have the highest-estimated redundancy as a percentage of carried reserves, Fitch reported.

P&C prior period loss reserves have increased for the past seven consecutive years, Fitch said, positively affecting statutory profitability. However, favorable development declined slightly in 2012 and could slow further.

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