U.S. P/C Industry Runs Out of Reserve Runway In 2013

Chris Westfall
Chris Westfall

Property/casualty insurers bolstering earnings and suppressing prices through redundant reserve releases will hit a wall in 2013, according to a report issued by Aon Benfield Analytics Wednesday.

Given the current run rate in reserve releases, U.S. P/C reserve redundancy will be eliminated in “1.1 years,” Aon says.

The report states the U.S. P/C carriers had undiscounted statutory redundant reserves as of $11.7 billion in 2011 after releasing $12.7 billion reserves during the same period,

There is a total of $573.4 million in reserves for U.S. P/C carrieres, with commercial liability having the highest amount with $228 billion and financial guaranty the least with $27.3 billion

“The headwind against a broad market hardening from reserve releases continued in Q1 2012, as public companies released an additional $4.2 billion of reserves, compared to $4.6 billion in 2011, said Stephen Mildenhall, CEO of Aon Benfield Analytics in a statement. “However, the forecast is for the winds to abate over the next four to six quarters, with the hard market years slowing and the more recent accident years booked less conservatively.”

Wall Street analysts have been focusing on the end of reserve releases keeping P/C earnings artificially high, with Barclays Capital the latest to cite the end of practice.

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