The U.S. property/casualty industry posted its highest level of favorable prior accident year reserve development since 2009 in calendar year 2013, according to an analysis released Thursday by Charlottesville, Va.-based SNL Financial L.C.
SNL's analysis, based on its review of annual Schedule P results, found that despite increasing concerns about reserve adequacy in certain key business lines, the industry's development of net losses and defense and cost containment expenses, or DCCE, for all prior accident years was favorable by $14.74 billion in calendar year 2013, up from $12.17 billion in calendar year 2012.
But among major commercial insurers, American International Group Inc.'s property/casualty group overall had unfavorable development for a fifth consecutive calendar year, said SNL. “Its $383.8 million in reserve building across business lines ranked second only to Liberty Mutual Holding Co. Inc.'s $815.8 million among P&C groups and top-tier entities with data available as of March 21,” said SNL, noting that among other things, Liberty Mutual increased its workers compensation reserves by $236.3 million.
But SNL said that Liberty Mutual's reserve building was an exception, not the rule. “Favorable development of $580.3 million on an industrywide basis marked the highest level of workers comp reserve releases in a calendar year since 2008,” said SNL. “When excluding the select state funds and residual markets under SNL's coverage, the industry's favorable development declines to $229.7 million. But that figure still marks the highest level of workers' comp reserve releases in a calendar year since 2008.”
SNL said that its analysis in “P&C industry's statutory reserve releases increased in calendar year 2013,” should be accompanied with a few caveats. For example — three insurance operations — Berkshire Hathaway Inc., State Farm Mutual Automobile Insurance Co. and its affiliates and bond insurer Financial Guaranty Insurance Co. — combined to account for more than 50% of the industry's overall prior-year development last year.
“Thanks to the manner in which FGIC's 2013 rehabilitation plan requires the company to record its loss reserves, the company posted an industry leading level of favorable development totaling $2.94 billion,” said SNL.
SNL noted that industrywide results will change as additional 2013 data is received, including in workers comp. It said that the “most notable omission from the 2013 results” as of the date of the report is Tower Group International Ltd., which had not submitted annual statements to the National Association of Insurance Commissioners.
The full analysis is available .