January 16, 2003
Property-Casualty Insurers' Reserve Deficiency More Than Doubled Since Last Year
- Recent Efforts Insufficient to Cover Rising Cost of Claims
(Hartford, CT) - Despite the Property-Casualty (P-C) industry's best efforts to have rates keep pace with losses, results are deteriorating, according to a new study by Conning Research & Consulting, Inc. In fact, Conning estimates that the deficiency has more than doubled from just a year ago, further straining P-C insurers' ability to cover the rising cost of claims.
Conning's most recent study,"Property-Casualty Reserve Adequacy; Digging Deeper," finds that even though industry reserves were increased by more than 8% in 2002, this increase is insufficient to strengthen the reserve position. Price increases, stricter underwriting guidelines, and greater loss controls have not yet constrained poor underwriting results.
"All nine of the P-C lines we studied are deficient with a total reserve deficiency of $38.5 billion, up from $16 billion last year," said Michael Weinstein, Director of Research, Conning Research & Consulting. "Prudent insurers will carefully examine their results, whether good or bad, to identify and explain why they are better or worse than overall industry results. Insurers cannot simply accept good results and question the bad."
This study is intended to develop an independent and unbiased view of the P-C industry's loss experience and compare it to the industry's estimate. It represents $288 billion of the industry's $378 billion in reserves, or 76.2%. The analysis includes:
- Estimated redundancy/deficiency of the loss reserves for the P-C industry by line of insurance.
- Analysis of the P-C industry's loss reserves by line of insurance.
- Summary loss and premium data for the P-C industry by line of insurance.
"There are several reasons for the increase in P-C insurers' reserves," said Weinstein. "The ongoing recession, the rising cost of medical care, the emergence of mold and re-emergence of asbestos and other environmental claims, and the lingering impact of September 11 have all contributed to the pressure mounting on P-C insurers' reserves."
Despite the fact that loss reserves are the largest liability on insurers' balance sheets, most stakeholders (employees, regulators, investors and agents/brokers) do not critically examine their adequacy. Individual company results, particularly for a single line, are likely to differ, often dramatically, from those of the industry. The survival of some insurers and reinsurers may well depend on their ability to accurately reserve and appropriately price.
"Property-Casualty Reserve Adequacy; Digging Deeper," is available from Conning Research & Consulting, Inc., by calling toll free (888) 707-1177 or (860) 520-1521. A complete listing of all Conning research products can also be found by visiting the company's Web site at www.conningresearch.com.
About Conning Research & Consulting
The Conning name has represented excellence in independent insurance industry research for more than 90 years. As a result of its wealth of experience and intimate knowledge of the insurance industry, Conning understands industry challenges and opportunities and can provide in-depth insights and analyses. Conning provides both public and proprietary research as well as consulting services to the financial services industry. Conning has offices in New York and Hartford.
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