Conning Study Says P/C Insurers’ Loss Reserves Hit Turning Point as Deficiencies Decrease

Three years of rising property/casualty rates have finally had a favorable impact on loss reserves, substantially reducing estimated deficiency, according to the latest annual study on the subject by Conning Research & Consulting.

The study, “Property-Casualty Loss Reserves: Strengthening Numbers,” finds that a significant number of reserve additions were recorded by the industry in 2002 to address both under-reserving and continued development associated with environmental and asbestos claims. However, Conning’s study also reports that deficiencies still exist in the industry.

“In many ways, 2002 appeared to mark a turning point in reserve
adequacy,” said Michael Weinstein, director of Research of Conning
Research & Consulting. “The addition of $17 billion in total reserves
and the industry’s refocus on underwriting, loss control, and claims
management of loss exposures have reduced the prior-year estimated deficiency. Accident years 1997-2001 still appear to be deficient, but accident year 2002 carried reserves may be adequate.”

Despite the improvement in the industry’s reserve position, the study
notes that at current levels, there is still much work to be done.
Reserve addition announcements relating to prior periods have
continued in 2003, and it is highly likely that, as individual
insurers assess their situations, industry reserves will continue to
increase.

“Insurers are operating under a different external environment than
just two or three years ago,” said Weinstein. “Scandals, such as
those associated with financial reporting at Enron, resulted in the
demise of Arthur Andersen, and the enactment of The Sarbanes-Oxley Act of 2002. We believe this is causing auditors to scrutinize
financial statements (reserves) more closely prior to signing off on
them.”

“Property-Casualty Loss Reserves: Strengthening Numbers” is available for sale from Conning Research & Consulting, Inc., by visiting the company’s Web site at www.conningresearch.com.