Moody's Investor Services expects reserve releases from the U.S. property & casualty industry to "taper off" over the next year to two years.
Reserves are still redundant, but the "cushion has narrowed considerably," Moody's said in a special report. Favorable development occurred in all lines in 2009, the provider of credit ratings, research, and risk analysis said.
But as releases shrink, taking into account lower investment yields, "insurers will either raise prices or watch their combined ratios continue to rise."
During the first quarter this year, the industry released $6.5 billion in reserves, equal to about 1 percent of year-end 2009 reserves, compared with about $4.4 billion released in the 2009 first quarter. However, Moody's noted that in both cases much of the reserve releases were by several large personal lines companies.
For four years, the industry has "harvested significant favorable reserve redundancies" due to price increases, improved terms and conditions, better loss cost trends and a low occurrence of natural catastrophes in 2006 and 2007.
"As a result, companies are able to release reserves, as actual claims are lower than expected," Moody's said.
Today Allstate Corp.reported its second quarter results, which included $83 million in favorable prior year reserves.
