2020: 2019 Property-Casualty Loss Reserves - Little to No Change

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 fourteenth consecutive year that the industry has had favorable development from prior accident years. At year-end 2019, carried loss reserves were redundant by 3.3% ($21.2 billion), a slight deterioration from the year-end 2018 redundancy of 3.4% ($21.5 billion).

    1.     Introduction

    2.     Executive Summary

    3.     Industry Overview—Common Themes

²     Favorable Loss Development Continued in 2019

²     Factors Influencing the 2019 Reserve Picture

²     Summary Evaluation of Reserve Strength

²     Loss Reserves by Company Size Segment

²     Summary

    4.     Private Passenger Auto Liability/Medical

²     Reserve Position Improves Again in 2019

²     Reserves for Most Accident Years Appear Adequate

²     Summary

    5.     Homeowners/Farmowners

²     Reserve Redundancies Increase in 2019

²     Summary

    6.     Workers’ Compensation

²     Reserves Remain Strong in 2019

²     Summary

    7.     Commercial Multiperil

²     Reserve Redundancy Continues to Shrink

²     Summary

    8.     Other Liability

²     Reserve Position Shows Improvement

²     Summary

    9.     Commercial Auto/Truck Liability/Medical

²     Reserve Position Improves, but Still Deficient

²     Summary

  10.     Medical Professional Liability

²     Reserve Redundancies Persist, but Are Dropping

²     Summary

  11.     Miscellaneous Lines

²     Reserve Redundancy Decreases: Favorable Reserve Development Continues

²     Summary

  12.     Asbestos and Environmental

  13.     Industry Comparison with Small Insurers

²     Small Insurers Slightly Better Than Industry, but Differences by Line

²     Redundancies and Deficiencies Split Across Lines of Business

²     2019 Calendar-Year/Accident-Year Reconciliation

²     Summary

  14.     Industry Comparison with Midsized Insurers

²     Reserve Position for Midsized Insurers Weakens

²     Redundancies in Fewer Lines of Business

²     2019 Calendar-Year/Accident-Year Reconciliation

²     Summary

  15.     Industry Comparison with Large Insurers

²     Large Insurers’ Reserves Stronger Than the Industry’s

²     Redundancies in Most Lines of Business

²     2019 Calendar-Year/Accident-Year Reconciliation

²     Summary


A.    Methodology

B.    Glossary

C.    Additional Data


Our review of the property-casualty insurance industry’s loss reserve position suggests slight deterioration in 2019, 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 high volatility. With inflation and/or more robust growth, these patterns are likely to change, thus adversely affecting loss reserve adequacy.

In 2019, the industry experienced favorable loss development of $5.7 billion, representing 0.9 point of benefit on the calendar-year loss ratio. Based on the preliminary data used for this analysis, this marks the 14th consecutive year that the industry has had favorable development from prior accident years.

This is the second 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 third 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 2019, these lines represented approximately 29% of the industry’s net premiums earned, and at year-end 2019 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 all companies with no adjustments to the data.

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. Since 2017, except for workers’ compensation, rates have increased for most lines of business. These rate increases appear to be having the desired effect of lowering the loss ratios in 2018 and 2019. The exception to this trend is medical professional liability, where accident-year loss ratios appear to be deteriorating.

The lines of business that we review represent about 90% of the total reserves for the property-casualty industry. The remaining reserves are for lines of business that we do not review, including special liability, products liability, and nonproportional reinsurance. 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 10% of the industry’s reserves.

Conning’s loss reserve studies are based on an extensive analysis of Schedule P of the annual statement using data provided by S&P Global Market Intelligence (used with permission). Schedule P includes ten years of historical data with analysis of paid losses and incurred loss development for the casualty and liability lines. Analyzing and interpreting incurred loss (less IBNR) and paid loss data form the basis for making projections about ultimate loss liability.

Data analyzed in this study are based on a preliminary universe of company filings for year-end 2019, including annual statement information from S&P Global Market Intelligence.

Note, in this study, calendar-year losses and loss ratios are derived from Schedule P data and do not always reconcile exactly with comparable figures presented in other parts of the annual statement.