Moody’s: Moderate Reserve Releases in U.S. P/C Industry to Continue

September 26, 2013

U.S. property and casualty (P/C) insurers continue to release reserves to support earnings, said Moody’s Investors Service in two recent reports.

U.S. P/C insurers released $9.0 billion of reserves during the first six months of 2013, with a significant portion coming from large personal lines carriers, said Moody’s in its first report “US P&C Reserves — Commercial Starts to Look Better.”

Moody’s said it believes that the industry’s overall reserve position will continue to be moderately redundant at year-end 2013 based on continued rate firming, benign loss cost trends, enhanced underwriting standards and the rating agency’s estimate of $7-11 billion core reserve redundancy at year-end 2012.

“Given the rise in premium rates over the past three years relative to loss trends, we also expect modestly redundant accident year reserves in 2013 for standard commercial liability lines,” said Moody’s analyst Jasper Cooper. “2012 accident year reserve positions are breakeven to slightly deficient, an improvement from the deficiencies in 2010 and 2011.”

Commercial insurers will release reserves at a more modest pace than personal insurers as redundancies for older accident years diminish, according to Moody’s second report “US P&C Insurers’ Reserve Releases To Continue, But Remain Modest.”

“As we expected, personal lines insurers and higher-rated insurers (Aaa/Aa insurance financial strength) had larger reserve redundancies than commercial lines carriers and lower-rated companies,” said Moody’s analyst Ben Goldberg.

Moody’s said that recently, the majority of reserve releases have come from other short tail (two-year) lines, personal lines, reinsurance and medical malpractice, whereas back in 2008, a large share of reserve releases was in commercial lines.

Among the top 25 U.S. P/C insurers, there is a wide range of reserve strength, with some companies having significant redundancies while others have moderate deficiencies, according to the ratings firm.

Source: Moody’s

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