Insurer reserve releases set to slow as prices fall

Property/casualty insurers will likely announce solid reserve releases in 2015 but declining insurance premiums point to lower releases in 2016 and 2017, according to a report from investment analyst Keefe, Bruyette & Woods Inc.

The analysis of the industry’s year-end 2014 reserves “points to industry-wide redundancies of $21.6 billion, or 3.6%,” said the report, “Insurance Property and Casualty, April 19, 2015: Is the Joy Ride Over? Solid 2014 Reserve Adequacy Points to Peak Releases,” released Monday.

Insurers’ financial results have been bolstered for the past several years by reserve release, which have resulted from lower losses and lower than expected claims inflation.

The firm believes the industry’s reserve position is strong enough to sustain solid reserve releases in 2015, although releases have slowed from 2013’s peak, the analysts said in the new report,

The analysts, however, are “much more cautious on 2016 and 2017 reserve releases, which should begin to more fully reflect 2014-2017’s likely less robust pricing environment,” said the report.

“We’re at the point in the pricing cycle where rate adequacy is fading, leaving less excess cushion in loss picks,” the report said.