In a new report published this week, Fitch Ratings concludes based on its analysis of loss reserves that the US property/casualty industry loss reserve position at year-end 2012 remains within a range of adequacy and is relatively unchanged from the prior year.
Low interest rates and low general inflation have promoted claims cost stability for the property/casualty insurance industry. A return to sharply higher inflation appears unlikely in the near term, reducing the risk of adverse reserve movement for insurers. Key claims cost drivers including medical and tort-related costs have been more stable recently as well but remain a potential source of future volatility.
Individual segments that were more heavily impacted by past competitive market conditions and the effects from the economic recession on claims trends continue to show reserve inadequacy. Workers' compensation, product liability, and commercial auto liability segments are among the weaker segments.
Conversely, segments with a recent history of reserve strength continue to demonstrate estimated redundancies. Medical professional liability, personal auto liability, and other liability-occurrence lines have the highest estimated redundancy as a percentage of carried reserves.
For the last seven consecutive calendar years, property/casualty industry prior period loss reserves have developed favourably, positively affecting statutory profitability. The magnitude of favourable development declined moderately in 2012 and is anticipated to slow further in 2013 and going forward.
The full report 'Property/Casualty Industry Loss Reserve Adequacy' is available at ' www.fitchratings.com' under 'Insurance' and 'Special Reports'.
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