Q2 reserve releases: Not much left

Fitch estimates that P/C reserves were redundant by $6B to $16B at year-end, according to this P/C 360 report. So far this year, insurers have pushed prior-year reserves down $7.4B, which indicates the well must be about dry.

The $7.4B takedown comes via Quarterly Statement data released last week (gathered by SNL). The table breaks down the change by company focus, with a negative number being a takedown of reserves.

Looking at individual lines, Fitch says, “The biggest change in reserve adequacy in recent years has taken place in the workers’ compensation lines, which currently looks deficient. Other segments that are estimated to be understated in aggregate are product liability–occurrence, and to a lesser degree, commercial multiperil.”

Medical malpractice–claims made and occurrence, as well as “other liability–occurrence” were shown to be the most redundant lines, according to Fitch. Private passenger auto liability was listed as slightly redundant, while homeowners’ and commercial auto liability were adequate.

Workers comp appears deficient, according to Fitch. Product liability-occurrence reserves and commercial multiperil might be weak as well.

A recent Keefe, Bruyette and Woods study indicated recent accident years (2008-2010) were deficient $6.4B, but Fitch thinks recent-year reserves are about where they should be.

Update: SNL did its own analysis (sub. req.) of prior-year development:

  • $7.4B first half reserve release is down from $9.1B in first half 2010.
  • Q2 favorable development of $2.8B is 16% less than the $3.3B favorable in Q2 2010.
  • Mortgage insurers have an outsize impact on development. That’s best seen from the table above, with financial lines unfavorable $1.6B while the rest of the industry is favorable around $9B. That $9B is less than the $10.5B favorable that non-financial writers posted in first half 2010.
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