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According to an analysis of loss reserves published in mid-March by Assured Research, 2021 marked the 16th straight year that the U.S. P/C industry’s loss reserves developed favorably—by about $11.1 billion during 2021, or around 1.7 percent of the prior year’s reserves.

Executive Summary

The P/C insurance industry is largely on its own to face surging inflationary pressures, with only modest back-book reserves left to be released to maintain calendar-year margins if pricing fails to keep pace with inflation. That's one takeaway that Assured Research analysts shared in their summary of the industry's reserve position, which they estimate to be $22.3 billion redundant at year-end 2021. Here, they also analyze a $13.6 billion redundancy in the workers comp line by itself, patterns of reported claim activity by line of business and past inflationary impacts on insurer ROEs.

$11.1 billion is a big number. It roughly ties with the release in calendar year 2018 and is otherwise the largest release since the last hurrahs from the 9/11 hard market flowed through industry income statements roughly a decade ago.

There’s more: Reserves released from pandemic-plagued accident year 2020 totaled nearly $8 billion. That’s nearly a 2 percent decrease in the initial ultimate loss selection, on par with some of the massive releases experienced on business written during the peak of the 9/11 hard market.

But reserves may not continue developing favorably to that same degree; we all know that “it’s different this time.” As if social inflation weren’t enough, the pandemic disrupted the 2020 and 2021 diagonals on claim triangles by reshaping everything from driving patterns to the economy, consumer and claiming behaviors. And now, for the first time in the careers of many insurance professionals, the industry has to deal with accelerating economic inflation.

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