The nation’s property and casualty insurers increased reserves for prior-year paid and unpaid claims by $22.1 billion in 2002, on top of an $11.7 billion increase in 2001, according to Weiss Ratings, Inc.
The increase, which represents the largest reserve adjustment made by property and casualty insurers since Weiss began analyzing the industry, reflects the companies’ failure to adequately estimate losses.
Total Reserve Adjustments 1991 – 2002
“Instead of setting aside reserves based on conservative actuarial estimates, insurers in the ’90s were under-reserving in an attempt to boost profits,” said Melissa Gannon, vice president of Weiss Ratings, Inc. “Now it’s come back to haunt them, effectively driving up premiums for today’s policyholders.”
In reviewing property and casualty insurers by each line of business, Weiss found that the majority of business lines required additional funding for loss reserves, while just four – products liability-claims made, international, reinsurance A(1), and auto physical damage – maintained adequate or excess reserves in 2002.
“Much of these increases are the result of asbestos lawsuits, losses from September 11, and the after-effects of the soft insurance market,” continued Gannon.
Industry Posts $13 Billion Profit
Property and casualty insurers earned a profit of $13.3 billion in 2002, compared to a $3.4 billion loss in 2001.
Improved underwriting results contributed to the industry’s profitability, as insurers cut their underwriting loss to $28.3 billion in 2002, compared to a $49.6 billion loss in 2001. This underwriting loss was then compensated for through insurers’ $43.1 billion in investment income, which was up slightly from the $40.7 billion recorded in 2001.
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