The insurer’s are still cookin’ the books to improve balance sheets. If they were truthful about their WC and auto reserves, they’d all need government bail out funding.
Interesting that while many insurers are expected to use over-reserved losses in previous years to improve current earnings the 600 pound gorilla in the room still has to keep adding to old under-reserved losses:
This phenomenon is largely caused by changes in terms and conditions. The actuaries that estimate reserve needs are pretty good at estimating price changes and adjusting their analyses accordingly; the same is not true of terms and conditions. Thus, reserve needs are overstated for hard market underwriting periods when terms and conditions are tight, and correspondingly understated for soft market periods when they are loose. How loose have terms and conditions gotten during this soft market? We’ll find out in a couple years when those reserve increases start coming in.
The insurer’s are still cookin’ the books to improve balance sheets. If they were truthful about their WC and auto reserves, they’d all need government bail out funding.
Interesting that while many insurers are expected to use over-reserved losses in previous years to improve current earnings the 600 pound gorilla in the room still has to keep adding to old under-reserved losses:
http://www.aig.com/Chartis/internet/US/en/Q22012_PressRelease_tcm3171-439950.pdf
Second quarter 2012 results included catastrophe losses of $328 million and net “prior year adverse development of $117 million”
One has to wonder how things are going over there and how bad off they truly are.
This phenomenon is largely caused by changes in terms and conditions. The actuaries that estimate reserve needs are pretty good at estimating price changes and adjusting their analyses accordingly; the same is not true of terms and conditions. Thus, reserve needs are overstated for hard market underwriting periods when terms and conditions are tight, and correspondingly understated for soft market periods when they are loose. How loose have terms and conditions gotten during this soft market? We’ll find out in a couple years when those reserve increases start coming in.