2019: 2018 Property-Casualty Loss Reserves - What's Holding Up the Industry?

Price : $1,750.00

In this study, Conning analyzes Schedule P statutory data and presents its loss reserve findings for individual lines of business and aggregated for the industry.  This marks the thirteenth consecutive year that the industry has had favorable development from prior accident years.  At year-end 2018, carried loss reserves were redundant by 3.4% ($21.5 billion), an improvement from the year-end 2017 redundancy of 2.6% ($15.8 billion).

1. Introduction

2. Executive Summary

3. Industry Overview—Common Themes

  • Favorable Loss Development Continued in 2018

  • Factors Influencing the 2018 Reserve Picture

  • Summary Evaluation of Reserve Strength

  • Loss Reserves by Company Size Segment

  • Summary

4. Private Passenger Auto Liability/Medical

  • Reserve Position Improves in 2018

  • More Recent Accident Years’ Reserves Appear Adequate

  • Summary

5. Homeowners/Farmowners

  • Reserve Redundancies Drop in 2018

  • Summary

6. Workers’ Compensation

  • Reserves Continue to Strengthen in 2018

  • Summary

7. Commercial Multiperil

  • Reserve Redundancy Shrinks Due to Catastrophes

  • Summary

8. Other Liability

  • Both Occurrence and Claims-Made Reserves Remain Deficient

  • Summary

9. Commercial Auto/Truck Liability/Medical

  • Reserve Position Deteriorates Further; When Will Things Change?

  • Summary

10. Medical Professional Liability

  • Reserve Redundancies Remain Strong

  • Summary

11. Miscellaneous Lines

  • Reserve Redundancy Grows; Favorable Reserve Development Continues

  • Summary

12. Asbestos and Environmental

13. Industry Comparison with Small Insurers

  • Small Insurers Similar to the Industry, but Differences by Line

  • Redundancies and Deficiencies Split Across Lines of Business

  • 2018 Calendar-Year/Accident-Year Reconciliation

  • Summary

14. Industry Comparison with Midsized Insurers

  • Midsized Insurers Stronger Than the Industry but Reserve Position Weakened

  • Redundancies in Most Lines of Business

  • 2018 Calendar-Year/Accident-Year Reconciliation

  • Summary

15. Industry Comparison with Large Insurers

  • Large Insurers’ Reserves Mirror the Industry’s

  • Redundancies in Most Lines of Business

  • 2018 Calendar-Year/Accident-Year Reconciliation

  • Summary

      A. Methodology
      B. Glossary
      C. Additional Data


Our review of the property-casualty insurance industry’s loss reserve position suggests improvement in 2018, when compared to our previous annual analysis. Overall, Conning believes the industry continues to carry sufficient reserves (gross of discount), with a modest degree of safety, under assumptions that claim settlement patterns will continue at their current pace. This is an important assumption that continues to be of concern in this period of low inflation and stronger economic growth. With inflation and/or more robust growth, these patterns are likely to change, thus adversely affecting loss reserve adequacy.

In 2018, the industry experienced favorable loss development of $11.9 billion, representing 2.0 points of benefit on the calendar-year loss ratio. Based on the preliminary data used for this analysis, this marks the 13th consecutive year that the industry has had favorable development from prior accident years.

This is the first study in which we include estimates of the reserve adequacy levels by line of business for small and large companies. In prior years, we included a review of loss reserves for midsized insurers (companies with annual premiums between $100 million and $2 billion). For completeness, we felt it appropriate to include an analysis of these other segments of the industry.

This is the second study in which we have estimated reserves for the miscellaneous lines segment. This segment includes, but is not limited to, auto physical damage, fidelity, surety, inland marine, mortgage guaranty, and financial guaranty. In 2018, these lines represented approximately 28% of the industry’s net premiums earned, and at year-end 2018 they represented 7% of the carried reserves. Based on their relevance to the industry’s financial performance, we believe it is appropriate to include these lines of business in the results of our study.

In this study, we again include a range of reserve adequacy for each core line of business and accident year. More information on these ranges is provided in subsequent sections in this study.

The performance of individual companies often can have a distorting influence on industry line-of-business results. In 2016, AIG, a leader in the commercial lines market, experienced significant adverse loss development in several lines of business, including workers’ compensation, other liability, and commercial auto liability. In 2017, AmTrust, a top ten writer of workers’ compensation, entered into a significant loss reserve development reinsurance agreement. Because of the impact of these companies on industry loss development patterns, in prior studies we made adjustments to account for their loss experience. In this study, we have included the experience for these companies.

In the several years leading up to 2017, most of the reviewed lines of business were experiencing growth in underlying exposures due to improving economic conditions. However, competition and below-average catastrophe losses in those years put downward pressure on rates, resulting in a chronic soft market and generally rising loss ratios.

In 2017 and 2018, except for workers’ compensation, rates increased for most lines of business. These rate increases appear to be having the desired effect of lowering the loss ratios in 2018. In 2018, there was a large increase in net premiums earned (9.8%) resulting from a combination of rate increases and certain companies retaining more premium in response to the BEAT (Base Erosion and Anti-Abuse Tax) provisions of the 2017 tax law changes.

The lines of business that we review represent about 91% of the total reserves for the property-casualty industry. The remaining reserves are for lines of business that we do not review, including products liability, nonproportional reinsurance, and miscellaneous casualty lines. These nonreviewed lines have loss development patterns that are inherently volatile and, as such, do not lend themselves to the type of analysis we perform on the reviewed lines of business. The nonreviewed lines represent the remaining 9% of the industry’s reserves.