The US P&C insurance industry reserve position has deteriorated further, risking capital in a weakening rate environment.
This is according to Aon Benfield, the global reinsurance intermediary and capital advisor of Aon, which launched its updated US P&C Industry Statutory Reserve Study, to reflect year-end 2013 data.
The study, compiled by Aon Benfield Analytics, revealed that commercial lines continued to move further into an overall deficiency position of $2.8 billion at the end of 2013 compared to an estimated $0.9 billion deficiency at the end of 2012.
Reserve positions worsened across the commercial lines sector, which includes commercial property, commercial liability, and workers’ compensation. Financial guaranty moved to a slightly less deficient position, though it represents a small portion of the overall commercial lines sector.
The personal lines sector continued to show a redundancy at the end of 2013, though not as strong as at the end of 2012, $9.3 billion and $10.1 billion, respectively.
According to the study, this continues a pattern of behaviour in personal lines carriers of being conservative in posting reserves early in the maturity of recent accident years. These lines are short-tailed lines of business, and any excess reserves tend to be released quickly.
The overall industry redundancy position decreased to $6.5 billion at the end of 2012, equivalent to only 1.1 percent of total booked reserves. This compares to a $9.2 billion total industry redundancy position at the end of 2013, while $14.8 billion was released by insurers during 2013. The amount of reserves released in 2013 was the highest since the 2008 to 2010 period.
Brian Alvers, chief actuary for Aon Benfield Americas, said: “It was a surprise to see more reserves released in 2013 as compared to 2011 and 2012, but the prior accident years continue to produce favourable reserve takedowns from the positive claims environment at the time.
“Personal lines reserve redundancy continues to support the overall industry reserve position, though almost 45 percent of it had been released at the end of the first quarter of 2014. The overall commercial lines reserves position models as deficient as of year-end 2013, and continued reserve releases of approximately $1.4 billion in the first quarter of 2014 have made the hole deeper.
“Rates increases in commercial lines sector of the U.S. insurance industry seem to be tapering off, therefore creating more risk for those insurers’ balance sheets.”
Aon Benfield, North America, Brian Alvers