NU Online News Service, June 14, 2:32 p.m. EDT
The property & casualty industry continued to release reserves in 2010, but this part of the reserving cycle may be coming to an end, says a report on loss reserves from Conning Research & Consulting.
Adverse development in recent years, coupled with soft pricing and decreasing redundancy, could put a halt to reserve releases, Conning says.
Reserves remain redundant, at about 2.4 percent after additional reserve releases in 2010. Conning says some of this redundancy could be a "consequence of muted claims activity associated with the recent recession."
Much of the redundancy is found in accident years 2005 to 2007, but adverse development for accident years more than 10 years old or prior to 2001 totaled $5 billion in 2010 compared to adverse "tail" development of $4 billion and $2 billion in 2009 and 2008, respectively, Conning continues.
"However, the level of adverse development in these older years is moderating in some lines of business, suggesting that the industry may be catching up finally to the demand to maintain adequate reserves in these older years," says Conning's report.
American International Group Inc. (AIG) accounted for much of the adverse development in older years. The company's reserve strengthening in 2010 was more than $5 billion compared to $11 billion for the industry.
Conning says it cannot determine if AIG's reserve strengthening in 2010 for older years is "reflective of emerging information in underlying trends or a change in methodology in response to, and anticipation of, changing ownership structure."
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