U.S. property insurers' reserves deteriorate but still adequate: Fitch
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U.S. property/casualty insurers’ loss reserves have deteriorated moderately, but they remain adequate for now, Fitch Ratings Ltd. said in an analysis.
The industry continues to benefit from reserve strength built up in prior years, the New York-based rating agency said Monday in its analysis titled “Property/Casualty Industry Loss Reserve Adequacy.”
Insurers’ total reserve development was $10.2 billion in 2010, down slightly from $10.3 billion in 2009, Fitch said.
Early this year, New York-based American International Group Inc. put about $4.2 billion aside to boost reserves at its Chartis Inc. property/casualty unit. Such actions are more related to the company’s previous emphasis on volatile lines of insurance “and unique recent financial circumstances, rather than a sign that other insurers will follow suit,” Fitch said in its analysis.
In recent quarterly earnings calls, more insurers are indicating expectations of “slight upticks” in claims costs going forward, tied in part to a return of modest expansion in the economy, Fitch said. Signs that this trend may accelerate likely would lead to a less positive view of the U.S. industry’s reserve position, analysts added.
“The biggest change in reserve adequacy in recent years has taken place in the workers compensation lines, which currently look deficient. Other segments that are estimated to be understated in aggregate are product liability—occurrence and, to a lesser degree, commercial multiperil,” Fitch said in the analysis.
“The greatest threat to maintaining adequate loss reserves going forward is an unexpected shift in inflation/interest rates, or loss cost factors that more specifically influence insurance claims costs” such as medical costs or litigation settlements, Fitch said.
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