Property-casualty insurers are dropping their reserves in the face of losses and declining rates in an effort to keep their return on equity high, a financial analyst said.
Morgan Stanley analyst William Wilt wrote that p-c insurers' loss reserve redundancy (capital reserved above expected losses) fell 4 percent, or $1 billion, to more than $16 billion.
"We appear to have passed the reserving high-water mark," he wrote, noting that more than three years of rate decreases plus accelerating medical inflation "could drain redundancies rather quickly going forward."
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