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Fitch: U.S. P/C Industry Loss Reserves Adequate But Strength Diminishing

Source: Investment Weekly News

Posted on 19 Nov 2012 by Neilson

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FitchIn a new report published, Fitch Ratings analysis concludes that the U.S. property/casualty industry loss reserve position remains within a range of adequacy. Fitch notes that reserve levels have weakened in the last year, but the potential for large deficiencies emerging in the near term is limited given continued low general inflation and relatively stable claims cost trends.

'Our analysis shows that current accident year reserving has become less conservative,' said Jim Auden, Managing Director at Fitch and North America Property/Casualty Insurance Sector Head. 'There are some variations in reserve adequacy across business lines. In particular, the workers' compensation segment exhibits a significant reserve deficiency, while other liability occurrence and medical professional liability lines continue to show material reserve redundancies,' Auden added.

A deterministic stress analysis of industry reserves was also completed. Fitch believes that with current capitalization levels and relatively low operating leverage, the industry could withstand an up to 20% loss reserve increase. However, ratings for individual companies with longer tail liabilities and higher reserve leverage would likely be unfavorably impacted by such significant reserve deterioration.

The report details the overall loss reserve environment, including discussion of emerging trends in current accident year reserving, reserve ratio analysis for the four largest reserve lines, and adequacy of asbestos and environmental loss reserves.