P-C Industry Reserve Adjustment $22 billion In ?02
NU Online News Service, July 1, 2:15 p.m. EDT?Weiss Ratings Inc. said U.S. property-casualty insurers had increased claims reserves by $22.1 billion last year in an adjustment, reflecting a "failure to adequately estimate losses."
Weiss, based in Palm Beach Gardens, Fla., noted that the industry had already raised reserves by $11.7 billion in 2001 .
Melissa Gannon, Weiss vice president said "instead of setting aside reserves based on conservative actuarial estimates, insurers in the 90s were under-reserving in an attempt to boost profits. Now it's come back to haunt them, effectively driving up premiums for today's policyholders."
Much of the increases, she said, "are the result of asbestos lawsuits, losses from Sept. 11, and the after-effects of the soft insurance market."
Weiss said that only four insurance lines, products liability-claims made, international, non-proportional assumed reinsurance property coverage, and auto physical damage had adequate reserves in 2002.
Lines that required the largest reserves in 2002 were:
? Non proportional assumed reinsurance liability, with a $5.2 billion adjustment after a $2.7 billion 2001 adjustment.
? Other liability including asbestos, which also had an adjustment of $5.2 billion after an $855.8 million charge in 2001.
? Products liability, at $3.2 billion in 2002 and $1.7 billion in 2001.
? Workers' compensation, boosted $2.3 billion in 2002 and $2.03 billion in 2001.
? Commercial multi-peril, which had reserve hikes of $1.5 billion in 2002 and $945.1 million in 2001.
? Homeowners/Farmowners–$1.3 billion in 2002 and $1.06 billion in 2001.
? Commercial Auto liability/medical– $1.07 billion in 2002 and $1.6 billion in 2001.
The insurers with the largest 2002 reserves included: American Re-Insurance of Princeton, N.J. $2.2 billion; Employers Reinsurance of Overland Park, Kan. $1.9 billion; Columbia Insurance of Omaha, Neb. $1.1 billion; National Union Fire Insurance of Pittsburgh, New York City, $1 billion; Travelers Casualty & Surety of Hartford, Conn. $$993 million.
Weiss noted that p-c insurers earned a $13.3 billion profit last year, compared to a $3.4 billion loss for 2001.
The rating firm said that improved underwriting results contributed to industry profitability as insurers cut their underwriting loss to $28.3 billion in 2002, compared to $49. 6 billion loss in 2001.
Weiss said the losses were compensated for with $43.1 billion in 2002 investment income, which increased from $40.7 billion in 2001.
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