Property/casualty insurer reserves deficient by $2.7 billion: Analysis

The property/casualty insurance industry’s loss reserves for accident years 2001 to 2010 are deficient, and are likely to become more so, according to a report issued Monday by Keefe, Bruyette & Woods Inc.

In its annual property/casualty industry reserve review, the analyst estimated that industrywide loss reserves for the period are about $2.7 billion—or 0.5%—deficient.

The report said that while reserves for accident years 2003 to 2007 “remain redundant,” accident years 2008 to 2010 “are under-reserved, and we expect to see adverse development related to those accident years in the future.”

Spread unevenly

The deficiency is not spread evenly over lines coverage, said the report. For example, medical malpractice liability has redundant reserves, while workers compensation and product liability reserves are deficient.

“We believe most P&C insurers will see a drop-off in the earnings benefit they receive from favorable development going forward, and we expect many companies will take reserve charges in the next couple of years,” according to the report. “If not, and reserve adequacy proves to be stronger than we expect, the resulting absence of significant reserve problems could actually prolong the current soft market conditions,” according to the analysis.