Commercial Insurance Reserve Deficiency Supports Continued Rate Increases

A study compiled by Aon Benfield Analytics reveals that commercial lines moved to an overall deficiency position of $0.9 billion at year end 2012 compared to an estimated $4.1 billion redundancy at year end 2011. Within the commercial lines sector, reserve deficiency increased in commercial liability, workers’ compensation and financial guaranty, with only property lines experiencing an increase in reserve redundancy.

The overall industry redundancy position decreased to $9.2 billion at year end 2012 – equivalent to 1.6 percent of total booked reserves. This compares to an $11.7 billion total industry redundancy position at year end 2011, of which $9.9 billion was released by insurers during 2012.

The report highlights that personal lines’ redundancy increased to $10.1 billion at year end 2012 (year end 2011: $7.6 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 percent 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 $0.9 billion at year-end 2012, and continued reserve releases of approximately $1.6 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.”

The Statutory Reserve Study is based on U.S. insurers’ ongoing statutory filings, and is therefore subject to future fluctuations in its data.

The full study can be found at the following link:

http://thoughtleadership.aonbenfield.com/Documents/20130612_ab_analytics_industry_reserves_study_2012.pdf

Source: Aon Benfield