Reserving Concern

The question of whether U.S. property/casualty insurance loss reserves will be adequate in the years ahead is gaining attention.   A panel of actuaries and analysts at Standard & Poor’s recent Ratings Service insurance conference warned that some property/casualty insurers could be in for a rude awakening with respect to their reserve practices. Concerns were expressed that broad expectations for a coming positive turn in the business cycle could be overdone and that reserve releases might be premature, leaving insurers exposed to unforeseen future liabilities. In a press release S&P notes that prudent reserving is the bedrock of the property/casualty industry’s financial strength. “The property/casualty insurance sector’s ability to properly estimate its loss and loss-adjustment expense reserves directly affects its financial strength,† the ratings agency said. Indeed it does. According to an A.M. Best report, deficient loss reserves and inadequate pricing are the leading cause of U.S. p/c insurer impairments, accounting for 38.1 percent of all impairments between 1969 and 2008. In contrast, investment problems (7.0 percent) and catastrophe losses (7.6 percent) played a much smaller role. For more on the panel discussions at the S&P conference, check out an online article at National Underwriter by Susanne Sclafane. Check out recent I.I.I. presentations on the financial strength of the insurance industry.

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