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U.S. Commercial Insurance Reserve Deficiency Supports Continued Rate Increases: Aon Benfield Study

Posted on 14 Jun 2013 by Neilson

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AON ReportAon Benfield, the global reinsurance intermediary and capital advisor of Aon plc on Thursday announces the launch of its updated U.S. P&C Industry Statutory Reserve Study, to reflect year-end 2012 data.

The study, compiled by Aon Benfield Analytics, reveals that commercial lines moved to an overall deficiency position of USD0.9 billion at YE2012 compared to an estimated USD4.1 billion redundancy at YE2011. Within the commercial lines sector, reserves deteriorated in commercial liability, workers' compensation, and financial guaranty, with only property lines experiencing an increase in reserve redundancy (see notes to editors).

The overall industry redundancy position decreased to USD9.2 billion at year end 2012 - equivalent to 1.6% of total booked reserves. This compares to an USD11.7 billion total industry redundancy position at year end 2011, of which USD9.9 billion was released by insurers during 2012.

The report highlights that personal lines' redundancy increased to USD10.1 billion at YE2012 (YE2011: USD7.6 billion), supporting the total industry position.  

The Aon Benfield study examines U.S. statutory Schedule P triangles to generate an overall industry position from a by-line analysis.

Brian Alvers, Chief Actuary for Aon Benfield Americas, said: "While personal lines reserves still show a meaningful amount of redundancy at year-end 2012, almost 40% of it had been released by the end of the first quarter of 2013. Commercial lines reserves, which were redundant at year-end 2011, have now swung to a deficient position of almost USD0.9 billion at year-end 2012, and continued reserve releases of approximately USD1.6 billion in the first quarter of 2013 have increased pressure on this segment. Rates in commercial lines sector of the insurance industry have been rising for the last eight to nine quarters, and the lack of reserve cushion should continue to fuel a hardening market in the commercial lines sector."