Property/casualty insurer reserve releases slowing: Analysis

Property/casualty insurers’ reserve releases are slowing and are likely to continue doing so, according to a report issued Monday by Keefe, Bruyette & Woods Inc.

The report, based on a review of third-quarter insurer results, found that pricing “might well be improving” for property/casualty insurers. But despite premium growth, the industry is experiencing weak underwriting results, according to the New York-based investment bank.

KBW noted that the average third-quarter combined ratio of the 46 insurers and reinsurers reviewed was 101.3%, an eight percentage point drop from the 93.3% combined ratio a year earlier.

KBW noted that on average, the combined ratio of the group of insurers studied “benefited by 5.3% from reserve releases,” which the report called “still good but much below the 6.7%” reported in the third quarter of last year.

Variety of factors

“We expect that slowing reserve releases are likely to accelerate (and in some cases reserve additions) as the many years of soft pricing affect results,” said KBW. The report said that a variety of factors including the possibility of continued accident-year deterioration will further pressure combined ratios.

“Are rates going up enough to offset these trends so that underlying margins can stay even with current levels?” asked the report.

Last month, the KBW issued a report holding that property/casualty insurers should consider cost-cutting measures as a means to deal with a difficult operating environment.