Insurance industry continuing to release reserves through 2014: Guy Carpenter

Homeowners and private passenger auto lines are exerting the greatest impact on the reserve cycle, suggests an updated analysis on industry reserves released last week by Guy Carpenter & Company LLC.

The analysis is based on 2013 annual statutory statements, notes a statement from Guy Carpenter, a global provider of risk and reinsurance intermediary services, and a wholly owned subsidiary of Marsh & McLennan Companies.

Guy Carpenter studies reserve movements by accident year, rather than financial year. By analyzing the cycle by accident year, “the trends are clearer,” Jessica Leong, lead casualty specialty actuary for Guy Carpenter, says in the statement.

“According to our analysis, accident year 2013 shows more releases than accident year 2012, not less, as we had been expecting,” Leong reports.

Homeowners and private passenger auto lines were found to be a major driver of the continued release of reserves, responsible for 70% of the improvement for accident year 2012. “However, there is a lack of a clear cycle for short-tailed lines, which makes it challenging to predict whether accident year 2013 will continue to show releases in 2014,” the statement adds.

“The somewhat random movement of the reserve cycle for short-tailed lines of business, such as homeowners and private passenger auto lines, makes it harder to predict what the future holds for the 2013 accident year,” Leong notes.

“However, long-tailed lines such as workers’ compensation, medical professional liability and commercial multi-peril, also released more reserves for accident year 2012 than for accident year 2011. That is much more interesting, since these long-tailed liability lines are very cyclical,” she adds.

Overall, the examination of eleven lines of business demonstrates the following:

• workers’ compensation reserves appear to be improving, despite noted deterioration over the last year;
• medical professional liability and commercial multi-peril lines appear to be making tentative turns to show greater reserve release in accident year 2012 than expected; and
• other lines such as commercial auto liability continued to exhibit deterioration.