Executives of property/casualty insurance carriers have been offering reassuring statements about the trajectory of the market lately. Premium rates are keeping pace with loss costs, they say. But can they really be sure that they know the size of loss costs? Those who remember when really hard markets still happened and when it was in vogue to report underwriting results “ex-A&E” reserve hits are never fully comfortable.
Certainly, carriers have better tools today to estimate loss costs than they did in those days. And actuarial pricing exercises only trend current loss costs out a year or so into the future, making long-tail reserve issues like those related to asbestos and the environment seem unimportant for pricing dynamics. But built into loss cost projections is an inherent understanding that carriers have some grasp of the ultimate payout of claims reported and incurred-but-not-reported under policies they’ve already written. An understanding of future loss costs is, in some sense, grounded in the adequacy of current loss reserves.
Member Only Content
To continue reading, purchase this article or become a member.
*Already have an account? Click here to login