Reserve redundancy drops among U.S. P&C carriers: Aon Benfield

Aon Benfield released Thursday a study of financial reserves in the U.S. property and casualty industry and found the “overall industry redundancy” position dropped US$2.5 billion, from $11.7 billion at the end of 2011 to $9.2 billion at the end of 2012.

All figures are in U.S. currency.

The report, titled U.S. P&C Industry Statutory Reserve Study, showed that in the commercial lines, the reserves “moved to an overall deficiency position” of $900 million at the end of 2012, compared to an estimated redundancy of $4.1 billion at the end of 2011.

The study was compiled by Aon Benfield Analytics and based on statutory filings by U.S. carriers. Aon Benfield is London-based Aon plc’s reinsurance intermediary and capital advisor.

“Rates in commercial lines sector of the insurance industry have been rising for the last eight to nine quarters, and the lack of reserve cushion should continue to fuel a hardening market in the commercial lines sector,” Aon Benfield Americas chief actuary Brian Alvers stated in a press release.

Aon Benfield noted that within commercial lines, reserves deteriorated in commercial liability, workers’ compensation, and financial guaranty, “with only property lines experiencing an increase in reserve redundancy.”

In personal lines, 2012 started with a redundancy of $7.6 billion and ended with a redundancy of  $10.1 billion. Aon Benfield noted that most of the redundancy in personal lines was released during 2012 but built back up due to a “favourable loss experience in accident years prior to 2012” and due to a “conservatively booked 2012 accident year.”