24 August 2015 News

Aggressive reserve releases may exhaust reinsurers’ abilities, warns S&P

Reinsurers that have released reserves quickly may find that they have exhausted their ability to support current reported profits from past reserves, according to rating agency Standard & Poor’s (S&P).

“We expect those reinsurers that chose to retain prudent reserves for longer to have maintained a cushion on which they could draw,” said the rating agency.

“In our view, the market is still soft enough that those who raise rates first might not find the rest of the market following suit; they would therefore likely lose market share.”

The rating agency added that over a reinsurance cycle, it expects reinsurers that use conservative reserving practices to generate more stable underwriting results.

“We attribute the lack of spikes in their releases to the fact that conservatively reserved companies will likely take longer to release prior period reserves when there is strong evidence of positive claims development,” said S&P.

However, more aggressive reinsurers, which realise favourable reserve development sooner, will experience more reserve volatility.

The rating agency added that it expects a reduction of reserve releases attributable to natural catastrophe events, because there have been relatively few catastrophe claims in 2013 and 2014.

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