2018 marked the 13th consecutive year in which the industry saw favorable prior-year reserve development bolstering calendar-year underwriting margins. Total releases for last year came in at over $10.7 billion.
Executive SummaryWith $7.1 billion in favorable loss reserve development, the workers compensation line was the biggest contributor to reserve releases of $10.7 billion across the property/casualty insurance industry overall in 2018, according to analysts at S&P Global, who also believe that the industry reserve position is adequate over the near-term horizon. In spite of challenged commercial auto and long-tailed casualty lines, as well as added pressures in personal auto, they expect continued but lower levels of reserve releases in 2019.
That said, when you examine the breakdown of reserve releases more closely, workers compensation and short-tailed lines accounted for $12.6 billion, which was $2 billion higher than the total amount the industry released. (See chart 1.)
The biggest culprits for the $2 billion in unfavorable development were other liability-occurrence, where significant levels of reserves related to asbestos and environmental (A&E) litigation drives continued reserve volatility to this day, and commercial auto liability, where notwithstanding substantial rate increases the industry can’t seem to catch up to loss trends.
U.S. P/C Reserves Adequate Overall
We do believe that overall reserves are adequate over the near-term horizon. Since 2007, the industry has averaged about $10 billion in reserve releases per year. (See chart 2.) While there certainly are lines that are in need of support, such as commercial auto and other liability, our opinion is supported by the steady reserve releases experienced in short-tailed lines and the large reserve releases for workers comp.