While property and casualty insurers have benefitted fromfavorable loss-reserve development in recent years, a Keefe,Bruyette & Woods (KBW) analysis contends that accident-years2008 to 2010 are underreserved and that adverse development willresult in the future.

|

KBW says it expects accident-years 2003 to 2007 to remainredundant. The firm also says that, according to its analysis,reserve adequacy varies by line, with medical-malpractice andother-liability lines appearing redundant while workers'compensation, nonproportional-assumed reinsurance and productsliability appear deficient.

|

KBW says it used both paid losses and case-incurred losses and anumber of reserving methods to generate its opinion on reserveadequacy. “These methods generate a range of reserve estimates, andwe average the most credible results to determine reserveadequacy,” KBW explains. Looking at reserve adequacy for 2001 to2010, KBW's analysis finds that reserves are deficient by $2.7billion, or 0.5 percent as of year-end 2010.

|

The analysis shows deficiencies of $415 million and $286 millionfor accident-years 2001 and 2002, respectively. Reserves forsubsequent accident years are redundant by $389 million (2003),$928 million (2004), $531 million (2005), $1.66 billion (2006) and$895 million (2007). According to the analysis, accident-years 2008to 2010 show total deficiencies of $6.4 billion: $3.44 billion in2008, $1.4 billion in 2009 and $1.54 billion in 2010.

|

At year-end 2010, the lines showing the greatest reservedeficiencies for the 2001 to 2010 time period, according to KBW'sanalysis, are workers' comp, deficient by $2.33 billion; productsliability-occurrence, deficient by $1.6 billion; andreinsurance-nonproportional assumed liability, deficient by $1.34billion.

|

KBW says it expects P&C insurers to see a drop-off in theearnings benefit they receive from favorable reserve development,“and we expect many companies will even need to take reservecharges in the next couple of years.” 

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

  • All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
  • Educational webcasts, resources from industry leaders, and informative newsletters.
  • Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.