Top 5 Reserve Boosts in 2013; Fitch Reveals Carriers with Unfavorable Development

January 26, 2014

Although the property/casualty insurance industry overall will report favorable loss reserve development from prior underwriting periods for the eighth consecutive year in 2013, several individual carriers had significant charges, Fitch revealed in a report last week.

Fitch reviewed loss reserve experience for 100 of the top U.S. P/C insurers, representing approximately 88 percent of industry aggregate loss reserves, as of Sept. 30, 2013, using data from SNL Financial.

Based on Fitch’s analysis, none of the insurers increased prior-year reserves by more than $500 million, but American International Group and Liberty Mutual came close, leading Fitch’s list of Top 10 insurance groups with unfavorable development.

The top five on Fitch’s list are shown below.

FITCH UNFAV DEVT 2013

In the report, Fitch reviews the reserve activity of three companies that made headlines in 2013 with material adverse reserve development charges—QBE Americas, Tower Group and Meadowbrook Insurance Group.

Fitch notes that Tower reported adverse reserve development of $179 million in the first half of 2013 and an additional $82 million in third-quarter, with the charges attributable to long-tail lines such as workers compensation, commercial multiple peril, other liability and commercial auto liability.

“Tower’s [overall] charge can be tied to companies acquired during its rapid growth and appears to be concentrated in ‘soft market’ accident years 2008−2011,” Fitch says.

QBE Americas’ $101 million charge through the first three quarter of 2013 related to workers compensation, general liability and construction defects coverage, the Fitch report says.

In addition, the company announced $200 million of reserve strengthening in the fourth-quarter 2013, which is not captured in Fitch’s figures tallied as of Sept. 30, 2013.

Fitch notes that Tower’s reserve strengthening announced as of Sept. 30 represented nearly 44 percent of Tower’s year-end 2012 statutory surplus. QBE’s $101 million reserve strengthening through nine months represented 4.5 percent of year-end 2012 statutory surplus.

While Tower and QBE ranked among the top 10 carriers based on reserve strengthening dollars—Tower ranking third and QBE, sixth—Meadowbrook’s $37.0 million of adverse reserve development did not fall in the top 10.

Other carriers with high levels of strengthening included eighth-ranked Physicians Reciprocal, with $58 million of strengthening adding 20.3 points to the loss ratio (representing 20.3 percent of earned premium) and ninth-ranked American Transit Insurance Co., with $50 million representing 40.6 percent of earned premiums, according to Fitch’s analysis.

For more information about Fitch’s special report, “Property/Casualty Loss Reserve Development: Five Insurers Carry Trend,” see related article, “Five Insurers Lead P/C Industry to 8th Year of Reserve Takedowns: Fitch.”

The full report is available on Fitch’s website at www.fitchratings.com (under the Insurance tab of the Ratings and Research section).

Source: Fitch Ratings