NU Online News Service, March 9, 12:12 p.m. EST
Reserve releases are showing signs of ebbing and insurers are pushing rate increases that could translate into as high as 10 percent increase over this year, according to a financial analyst's report.
A review of 54 publicly-reporting insurance companies for the fourth quarter shows that reserve releases declined 26 percent on a year-over-year basis, says Meyer Shields, an analyst for Stifel Nicolaus.
The total net release, of $1.7 billion was down from the $2.3 billion in the fourth quarter of 2010, based on analysis of the companies by Stifel Nicolaus.
The decline "once again [suggests] that reserve releases are decreasingly masking accident-year underwriting result deterioration inevitably stemming from prior periods' declining rates, 'normal' claim inflation, and the ongoing spate of global natural catastrophes."
The report goes on to say that while the $1.7 billion reserve releases "isn't insignificant" only seven insurers accounted for 65 percent of the group's total reserve releases "despite contributing only about 42 percent of the group's net earned premiums."
The insurers were:
• ACE
• Allstate
• Chubb
• Markel
• ProAssurance
• Travelers
• CNA
Close to 60 percent of the surveyed companies reported lower reserve releases on a year-over-year fourth quarter basis and 25 percent (13 out of 54) of the surveyed companies reported net unfavorable loss development.
While insurers reported improved pricing during fourth quarter conference calls, says Shields, "few—if any—insurers reported rate increases that currently match or exceed claim cost inflation."
With the expectation that interest rates on investments will not be increasing at a rate "that match or exceed claim cost inflation" insurance rates are expected to increase even more or insurers will begin to walk away from business they deem unprofitable.
The expectation, says Shields, according to the report, is that rates could rise into the 10 percent range through this year.
Carriers' earnings will be challenged until the rate increases flow from current levels into earned premiums, the report says.
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