US P&C hits decadal reserve redundancy on 3rd year of ‘dramatic’ building

Total loss and loss adjustment reserves likely grew notably again in 2023 for US P&C insurers, the third consecutive year of “dramatic” increases, likely rendering the strongest level of relative reserve redundancy in nearly a decade, analysts at AM Best have claimed. 

US P&C insurers likely upped total loss and LAE reserves to $918.3 billion, AM Best forecasts, a $63.3 billion or 7.4% increase on the prior year. 

That fits a picture of reserves growing “dramatically the last several years,” AM Best analysts write, calling out 7.4 5o 8.6% annual growth over the past three years. 

AM Best believes that those reserves are redundant by $11 billion, consisting of a $16.9 billion redundancy on core reserves and a $5.9 billion reserve deficiency on asbestos and environmental (A&E) reserves. 

Stated as a percentage of year-end booked reserves, total redundancy comes to 1.3% of overall reserves, the second year of redundancy after a four-year period of deficiency that included a peak deficiency of 2.1% in 2019. 

Estimated reserve levels vary widely by line of business, with workers’ compensation, commercial auto liability, and personal auto liability showing deficiencies. Workers compensation was said likely to have seen the vast majority of the 2023 weakening.

Redundancies are visible, in order of degree, in “all other,”, other/ products liability, medical professional liability, homeowners, commercial multi-peril and non-proportional reinsurance assumed. 

Reserve building has yet to throw the industry off its 17-year record of reporting favourable prior year reserve development, although 2023 will likely bring a sum to roughly match 2022’s $3.6 billion, a far cry from 2021's $7.1 billion.

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