In a new article published late last week, Fitch Ratings noted the prospect that 2024 could mark the end of a run of almost two decades of aggregate loss reserve releases for the U.S. property/casualty insurance industry.

While analysts at the rating agency project that 2023 will mark the 18th straight year favorable loss development for the P/C industry overall, whether the streak ends there will hinge on “the accuracy of insurers’ loss projections for claims severity tied to inflation and litigation risks in commercial auto and other liability business,” they said in a report titled, “Inflation Boosts U.S. P/C Insurers’ Reserve Risk in Casualty Lines.”

Also highlighting personal auto, and the “uncharacteristic adverse reserve development” in that line recorded in calendar year 2022, Fitch will be watching to see whether prior-period personal auto reserve boosts persisted across the industry in calendar year 2023.

As in the commercial auto and other liability lines, carriers’ inability to gauge personal auto claims severity in 2024 year could spell the end of an era of consecutive reserve takedowns industrywide.

Citing Fitch’s expectation that GDP will drop to 1.2 percent in 2024 from 2.4 percent, the report said the combination of slowing economic growth and persistently high inflation “raise the potential for an unfavorable shift in loss reserve adequacy that clouds the earnings picture” in 2024 for the industry overall.

Fitch is estimating that when all results are tallied for 2023, the industrywide calendar year loss ratio will include 0.7 points of benefit from the release of loss reserves for prior accident years—similar to a 0.6 point figure in 2022 and 0.9 in 2021. But the report goes on to note that more than 90 percent of all the favorable development for the industry in recent years came from the workers compensation line.

While insurers recorded 12 points of favorable development in workers comp in 2022, for other liability written on an occurrence basis, prior-year reserve boosts added 6.6 points to the line’s other liability-occurrence overall loss ratio. Also in 2022, commercial auto insurers recorded 5.7 loss ratio points attributable to reserve boosts in that line.

Bar graphs in the report show favorable workers compensation developments slightly declining over a four-year period—coming in at 12.2 loss ratio points for 2022, compared to 15.4 points in 2018.

“Workers compensation loss reserves are likely still significantly redundant, but carriers’ ability to maintain large redundancies in a weakening pricing environment remains uncertain,” the report says.

Like other industry analysts, the Fitch analysts note that the commercial auto and liability segments have been exhibiting weakness in the 2015-2019 accident years. While reserve experience has been better for accident years 2020 and 2021, the potential for accident years 2022 and 2023 to show signs of weakness as those years develop “is elevated by recent economic inflation and rising social inflation,” the report says.