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Ongoing disaster claims are beginning to affect property/casualty industry loss reserves, New York-based Keefe, Bruyette & Woods Inc. said in an analysis released Friday.
KBW said that while the industry's loss and loss adjustment expense reserves generally were adequate at year-end 2011, reserve deficiencies in recent years may soon offset redundancies from prior years.
“In general, we believe reserves for accident years 2004 to 2008 remain redundant and should continue to develop favorably over time, albeit at a declining rate, and accident year 2009 seems adequate,” the investment banking firm said in the analysis. “However, we wouldn't be surprised if accident years 2010 and 2011 develop adversely over time.”
Despite the dwindling reserves, KBW said it remains positive on the sector's future.
“Based on our reviews to date, we'd say the industry's reserves at year-end 2011 are generally adequate, with recent inadequacy offset by older reserve redundancies,” the report states. “We believe investors looking at the P/C industry today need to have a longer-term view and patience given the industry trends, even if investing in insurers with stronger balance sheets.”
The report, “2011 GAAP and Statutory Loss Reserve Development: Observations and Implications,” was compiled using data from annual 10-K filings submitted to the U.S. Securities and Exchange Commission by 62 publicly traded property/casualty insurers.