U.S. p&c reserves still a thorn in industry’s side

Just as U.S. p&c insurers disclose fourth quarter reserve charges, Moody’s Investors Service says the industry remains woefully under-reserved.In a study of the top 50 p&c insurers and reinsurers, Moody’s noted that commercial liability lines continue to be significantly under-reserved this includes workers’ compensation, medical malpractice, commercial multi-peril and general liability, and excess of loss liability for reinsurers.Not on the list are asbestos & environmental exposures, but Moody’s estimated as of September 30, 2003 this line was deficient by US$30 billion.The impact of these reserve issues is that Moody’s expects pricing to continue to be strong over the next 12 to 18 months as company’s seek to rebuild capital. Nonetheless, the rater says, “the pain of adverse loss reserve development will continue for at least another year”.And when the industry asks who is to blame for under-reserving, Moody’s refuses to place all of the blame at the feet of actuaries. “Actuaries have certainly played a role, but persistent reserve deficiencies are symptomatic of institutions that lack a strong cultural commitment to financial conservatism and transparency,” says Ted Collins, managing director of Moody’s p&c and reinsurance group.What distinguishes the company’s who are reserving better than their peers is the commitment of senior management to creating a culture of conservative financial reporting, specifically loss reserves which take into account not only historical trends, but also trends that are developing which may create future losses.That said, the industry is in a stronger reserve position today than in 2001, although slowly. And, the rater warns, further downgrades could be in the offing if the development of prior year accident reserves falls short of expectations or if current business is not as profitable as expected.