Environmental and asbestos liability reserves will remain on the back burner as a major concern for a few years, according to a new report from an investment bank.
Morgan Stanley analyst William Wilt wrote in his five-year update on reserving issues that as for asbestos, the combination of "massive" reserve charges and new legal trends "have relegated the issue to the back of the stove for at least the next couple of years as we see it."
While the issue may arise sooner for environmental liabilities, nothing is imminent.
"We agree the issue is a non-starter for at least a couple of more years, or until a greener president is elected and the budget at the EPA and Superfund begins to rise, thus generating some clean up activity and ensuing court actions," Mr. Wilt wrote.
The report delves into the following lines:
o Private passenger auto–redundancy reserves appears to be in the $2.5 billion to $4 billion range. Expect that redundancies will dissipate slowly and that loss ratios will rise thanks to declining premiums, slowing tailwinds to frequency trends, and low, but still positive severity trends, the report said.
o Commercial auto liability–one of the first lines to show improvement back in the 2000-2001 period, the report said loss ratio has begun to creep upward. Taken with accelerating rates of price decreases, the best times may be in the past for this line.
o Worker' Compensation–much to cheer in this line, he said. But with rates decreasing up to 10 percent, are actuaries banking on further negative loss cost trends, or might management teams be banking on further favorable development on accident year 2005 when reserving for accident year 2006?
o Medical Malpractice–estimated redundancy reserves will be the same as 2006. Negative severity trend losses and healthy reserve cushion may push the line beyond the peril of rate decreases, according to Mr. Wilt.
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