NU Online News Service, June 16, 3:51 p.m. EDT
Loss reserves maintained by the property-casualty insurance industry remained strong in 2008 although somewhat decreased from the year before, a research firm reported today.
Conning Research and Consulting in Hartford, Conn., said it found the industry released more than $14 billion from reserves, excluding massive reserve additions of $12.6 billion to mortgage guarantee lines – double the 2007 level.
The firm found that an inadequate position of the "over ten year" reserves will continue to pressure those companies with significant legacy reserves, compared with newer entrants. Based on the past record, Conning said, "This increasing competitive challenge once again may lead to a reversal of these favorable trends in reserve strengthening."
According to the firm, the p-c sector's overall deterioration of its reserve position continues a trend that began in 2007.
Premium growth within the industry, Conning noted, as a result of rate increases and economic conditions, had been the primary source of funds for reserve strengthening, and that has ended in the softening market and the softening economic conditions.
"At the same time, the growth in losses, particularly paid losses, has also slowed. Some of this is the result of continued decreases in frequency, and some may be the effect of increased deductibles and other loss retention programs. As a result, the loss reserve position has remained strong," said Conning.
Stephan Christiansen, Conning Research & Consulting research director, said, "Significant releases occurred in most lines of business, with an average benefit of almost three points in calendar-year loss ratio, compared with what would have been reported had no releases taken place."
He added that "the most significant releases, in terms of dollars, were in the most recent accident years of liability lines, and in workers' compensation. These lines are the most difficult to assess, and future rates of settlement and claim emergence must be watched closely."
The Conning Research study, "Property-Casualty Loss Reserves: Once More to the Well," analyzes statutory data from insurers' Schedule P filing with the National Association of Insurance Commissioners as part of Conning's ongoing annual industry review of the property-casualty industry's balance sheet position.
"Overall, the industry appears to continue to have sufficient reserves under reasonable assumptions of claims settlement patterns," said Mr. Christiansen.
He said, "Older years (for accident years prior to 1999) continue to develop adversely, but the pace of development has slowed considerably. The older-year reserves have been massively strengthened over the past several years and it is possible that the industry has now caught up to the need …"
But, he added that "the remaining reserves specifically set aside for latent claims, such as asbestos and environmental liabilities, appear thinner than in previous years, relative to recent settlement levels."
Conning said private passenger auto liability reserves appears redundant in 2008 by about 2.8 percent of carried loss reserves. The homeowner's line was found redundant by 3.1 percent – lower than the 10 percent level found in 2007 due to catastrophe activity.
For the workers' compensation line, Conning said reserves in 2008 may have been deficient by minus 4.1 percent. Commercial multiperil sector was said to be "mildly deficient at minus 2.7 percent of carried reserves."
Medical malpractice, in a "dramatic change" from a past deficiency of minus 25 percent was reported to have a possible redundancy of reserve position of 27 percent.
The report with detailed information on other lines can be purchased for $1,750 by calling (888) 707-1177 or online at www.conningresearch.com.
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