The property/casualty insurance industry appears to have sufficient reserves under assumptions that current claims settlement patterns continue. This is the feeling of Stephan Christiansen, director of research at Conning Research & Consulting.
“However, some of this apparent improvement may be related to a slow-down in the economy affecting loss reserve development, and there is also a range of possible trends that suggest this improvement could reverse with economic recovery,” he says. “In light of this, insurers should be thinking now about how an increase in liability trends or a significant spike in inflation in the out years might affect legacy loss reserves.”
Conning’s recent study, “Property-Casualty Loss Reserves: A Margin of Safety, but Is It Enough?” analyzes preliminary 2009 statutory data from Schedule P as part of Conning’s ongoing annual review of the balance sheet position of both individual lines of business and the property/casualty industry as a whole.
The study concludes that the industry’s reserve position has improved slightly in 2009, when compared to our previous annual analyses. On an overall basis, the industry released almost $20 billion in reserves in 2009 ($18.6 billion in the preliminary data used for this analysis). Excluding reserve releases in the financial and mortgage guaranty lines ($7 billion), the industry released more than $11 billion in reserves in covered lines in 2009 from years 2008 and prior, representing 2.2% of reserves carried in the prior year.
Other conclusions from Conning’s study include:
• The private passenger auto liability industry reserves were potentially redundant in 2009 by 3.9% of carried loss reserves. Our view of the reserve position suggests a moderate strengthening from our view in 2008, when the estimated redundancy was 2.8%.
• Homeowners line reserves at year-end 2009 may have been deficient by 1.5% of carried loss reserves. This compares to an estimated redundancy of 3.1% in 2008 and 10.2% in 2007.
• The workers’ compensation industry reserves may have been redundant in 2009 by 0.4% of carried loss reserves (effectively break-even), compared to an estimate of –4.1% deficiency in 2008.
• The industry reserve position for CMP (commercial multi-peril) at a mildly redundant 2.2% at year-end 2009, in spite of continued reserve releases.
• As of 2009, the reserve position for other liability lines to be potentially redundant in the range of 7.4% of reserves
• Based on levels of paid and reported losses that are falling faster than premiums, the apparent reserve position for commercial auto liability as of 2009 appears to have rebounded to a position of potentially comfortable redundancy as seen in 2007 and 2006.
• The estimated reserve position for medical professional liability suggests a possible redundancy of more than 26% of 2009 carried loss reserves, compared with a prior estimated redundancy of 28% of the 2008 carried loss reserves.
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