P&C reserves are actually improving, says Conning

Despite reports from rating agencies suggesting reserve deficiencies remain a major concern for U.S. p&c insurers, Conning Research & Consulting says the situation is actually improving.
Although reserve deficiencies persist, significant reserve additions made by companies in 2002 have turned the tide, according to Conning’s report, “Property-Casualty Loss Reserves: Strengthening Numbers”.
“In many ways 2002 appeared to mark a turning point in reserve adequacy,” says Michael Weinstein, director of research for Conning. “The addition of US$17 billion in total reserves and the industry’s refocus on underwriting, loss control, and claims management of loss exposures have reduced the prior-year estimated deficiency. Accident years 1997-2001 still appear to be deficient, but accident year 2002 carried reserves may be adequate.”
Conning speculates that additional reserve announcements will be forthcoming, on top of those already made in 2003. Continued pressure will be felt to strictly audit and respond to reserve issues in light of the spotlight on corporate governance, Weinstein notes. “Scandals, such as those associated with financial reporting at Enron, resulted in the demise of Arthur Andersen, and the enactment of The Sarbanes-Oxley Act of 2002. We believe this is causing auditors to scrutinize financial statements (reserves) more closely prior to signing off on them.”