Despite another $10.5 billion in releases in 2012, the overall reserve position for the P&C industry is stable and possibly improved since the previous review, according to “2012 Property-Casualty Loss Reserves: Getting Stronger, or has the Industry Discovered Fracking?” from Conning, an investment management company for the global insurance industry.
According to the report, the industry appears to have sufficient reserves, assuming claims settlement patterns will continue apace. The improvement comes despite additional reserve releases in 2012, when the industry released more than $10.5 billion in reserves, based on preliminary data. Also, excluding $1.1 billion in reserve strengthening in the financial and mortgage guaranty lines, the P&C industry released more than $11.6 billion in reserves in covered lines in 2012 from years 2011 and prior, representing more than 2 percent of reserves or 2.7 percent of premium in 2012, Conning said.
“The insurance industry appears to have found the ability to extend earnings support from loss reserve releases beyond where we would have expected this part of the reserve cycle to have been tapped out,” said Stephan Christiansen, managing director at Conning. “In that sense, it feels a little like the oil and gas industry’s discovery of fracking. These releases and continued reserve strength appear to be supported by improved margins from increasing premiums and a reduction in incurred losses, under assumptions that claims settlement patterns will continue apace. Of course, claims patterns can change as the economy changes.”
Increasing premiums and a reduction in net incurred losses may account for the modest improvement in reserve strength, Conning said. Net premiums rose because of modest rate-firming and improving economic conditions. Incurred losses for 2012 fell compared to 2011 on a calendar-year and accident-year basis. A portion of the decrease is attributable to lower net-catastrophe losses in 2012, even though direct catastrophe losses were comparable to 2011 after Sandy, Conning said.
“Reserves appear stronger than a year ago, reversing a trend of declining redundancies since 2009,” said Steven Webersen, Conning’s director of research. “With stronger premium growth and continued slow claims development patterns, the industry may be able to sustain this level of releases and not have to reverse direction.”
The report analyzes preliminary 2012 filing data from Schedule P as part of Conning’s ongoing annual review of the balance sheet position of individual lines of business and whole of the P&C industry.
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