P&C industry loss reserve position stable: Conning

The U.S. property and casualty insurance industry released in excess of US$10.5 billion in reserves in 2012 but the industry loss position is either stable or improved from 2011, according to a report released this week by Conning & Company.

Hartford, Conn.-based Conning, which provides investment management for the insurance industry, released Monday a study titled “2012 Property-Casualty Loss Reserves: Getting Stronger, or has the Industry Discovered Fracking?”

The study analyzes the balance sheets of individual lines of business and of the P&C industry in the United States as a whole, using the Schedule P reports of ratings firm A.M. Best Co., which in turn gets its Schedule P data from reports filed by more than 3,100 P&C companies to the National Association of Insurance Commissioners (NAIC), which is comprised of the insurance regulators of the 50 U.S. states, five territories and the District of Columbia.

Conning noted that preliminary data used in its report indicates the industry released in excess of US$10.5 billion in reserves in 2012.

“Our view of the property-casualty insurance industry loss reserve position is that it remain stable, perhaps even slightly improved in 2011 when compared to previous analyses,” Conning stated.

When broken down by line, Conning noted that private passenger auto liability reserves were “potentially redundant” by 7.2% in 2012, about the same as in 2011.

In homeowners insurance, Conning estimated redundancy in 2012 of about 10% of reserves, compared to an “apparent slight deficiency” in 2011.  There was a US$1.6 billion release of homeowner reserves last year, Conning reported, compared to a US$1-billion release in 2011.

“Some of this change reflects the effect of catastrophes in 2012 and 2011,” Conning stated in the report. “Hurricanes, in particular, can have more uncertain payment patterns that can extend to a second calendar year.”

In commercial auto liability, the redundancy of reserves was “essentially break-even” last year, Conning added.

In commercial multi-peril, Conning estimated the industry reserve position was “slightly deficient” at about 0.5% of reserves.

Across the P&C industry as a whole, net premiums, along with a reduction in net occurred losses, “may have provided some fuel” for the apparent improvement in the strength of reserves, according to the report.

Conning compared the effect of reserve releases on insurance carriers’ earnings to the effect of hydraulic fracturing on the financial performance of energy companies.

“As with the energy business and oil and gas ‘fracking,’ the industry has found what appears to be additional earnings support through the continued release of reserves – beyond the point that this had appeared to be tapped out,” Conning stated. “The good news is that stronger premium growth, combined with continued slow claims development patterns, suggest that the industry can sustain this level of releases and not have to reverse direction.”

Conning stated the data it analyzed from A.M. Best includes 10 years of historical data with an analysis of paid losses and reported loss development for the casualty and liability lines. It does not include reinsurance, property, financial or combined specialty lines.