A.M. Best Finds P-C Reserves Still Deficient
NU Online News Service, Oct. 6, 2:55 p.m. EDT?A.M. Best, in a new report, issued a fresh warning that the property-casualty insurance industry as a whole, despite considerable reserve charges in recent years, still carries overall reserve positions that are deficient.[@@]
Best, based in Oldwick, N.J., observed in its special report that reserve charges totaled almost $47 billion over the past three calendar years for the p-c industry, but it warned that the industry's reserves could still be deficient "by as much as $67 billion, or approximately 19 percent of policyholder surplus."
Examining where these deficiencies would come from, A.M. Best reported that of the $67 billion deficiency, $38.5 billion is related to unfunded asbestos and environmental losses while $28.5 billion is related to core loss and loss-adjustment expense reserves not related to asbestos and environment. These deficiencies have declined over the past several years, but they remain significant, Best said.
Best added that it expects continued adverse reserve development in the near-to-mid term, especially in the commercial lines and reinsurance segments. The ratings agency also pointed out that a number of companies are working on or have already completed ground-up A&E studies and that virtually all of the larger companies that completed these studies had to raise their reserves for A&E losses.
The ratings agency also warned that with market conditions generally having hardened for most lines of business, future reserve charges may "severely impact the balance sheets and operating performance of some carriers." A.M. Best warned that such charges could result in "ratings pressure and downgrades."
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