Third-quarter reserve releases declined nearly 19 percent over the same period a year prior—which could put greater pressure on carriers to increase rates, according to analysis by Stifel Nicolaus.

In its report, the financial-services firm says it reviewed 55 publicly traded insurance companies and found net releases for the third quarter of this year stood at $1.54 billion, compared to $1.9 billion for the same period last year.

The drop suggests that “reserve releases are decreasingly masking accident-year underwriting result deterioration” resulting from the prolonged soft market, claim inflation and catastrophe losses.

Of those surveyed, six insurers accounted for 60 percent of the total reserve releases. Those carriers were ACE, Allstate, Chubb, Markel, PartnerRe and Travelers.

More than 56 percent of the companies surveyed reported lower reserve releases on a year-over-year basis for the third quarter.

Eleven of the 55 companies, or 20 percent, reported unfavorable loss developments.

While most insurers say they are getting rate, Stifel Nicolaus says “few—if any—insurers reported rate increases that currently match or exceed claim-cost inflation.” The analysts add that any interest increase from investments “seems very remote.”

“We expect steadily more insurers to raise rates or walk away from unprofitable business, morphing into [around] 10 percent rate increases by mid-2012,” the report states.

Such increases benefit brokers first by increasing their commissions and earnings, notes Stifel Nicolaus. On the other hand, insurers’ return on equity will be challenged until rate increases begin to show underwriting profit.

Special Reports /

Reserve-Release Decline May Spell Greater Rate Increases

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