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Most commercial property/casualty line reserves redundant: Moody's

Posted On: Dec. 20, 2011 12:00 AM CST

Commercial property/casualty line reserves are redundant overall, but reserves for the latest accident years are deficient, Moody's Investors Service said in a report issued Tuesday.

Moody's said there is an overall redundancy of $3 billion to $4 billion, or 1% to 2% of carried reserves, for nonasbestos, standard core commercial property/casualty lines as of year-end 2010.

However, there are significant differences for various accident years, Moody's said. “There are continued redundancies for (accident years) 2004-2007, although those redundancies have declined over time as reserves have been released,” says the report. “We also believe that there is a moderate overall reserve deficiency for (accident year) 2009-2010 in standard commercial lines.”

The New York-based rating agency said it believes that “some insurers will need to strengthen reserves” for the 2009-2010 accident year for commercial liability lines “as it becomes more apparent over time that prices charged were inadequate.

“Since reserve positions for older accident years are more certain, we expect that companies will continue to harvest reserves from earlier accident years but may be slower to recognize deficiencies in the less seasoned years,” Moody's said in the report.