Conning Research: P/C Loss Reserves Position Deteriorated in 2007

July 1, 2008

While the property/casualty industry still appears to have strong reserves, overall its position began to deteriorate in 2007, according to a new study by Conning Research and Consulting Inc.

“The property-casualty industry’s reserve position began to deteriorate slightly in 2007, when compared with our prior analyses,” said Stephan Christiansen, director of research at Conning Research & Consulting.

“Reserves for the most recent 10 accident years appear even stronger than last year, under reasonable assumptions of continuing inflation and claims settlement patterns. However, with a closer look at reserves aged more than 10 years — the so-called “tail” — we see a need for additional strengthening in some lines of business, particularly in the reserves carried for those older years.”

The Conning Research study, “Property-Casualty Loss Reserves: Thinner, but Is the Tail Getting Fatter?” analyzes statutory data from Schedule P in an ongoing annual process.

“Despite over $15 billion in releases in reserves over the past two years, the most recent accident years — 2004-2007 — still appear to be redundant,” said Christiansen. “At the same time, adverse development for the “tail” of accident years — those more than ten years old or prior to 1998 — amounted to $6 billion in 2007. The emergence of adverse development in older years is persistent, and the percentage of loss reserves carried in accident years five years and older has been increasing. The combination of recent net releases and continuing adverse development suggest that the advantageous part of the reserve cycle may be about to run out, and the industry may soon face the need for reserve strengthening once again.”

Source: Conning Research & Consulting,

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