U.S. property/casualty insurers have seen significant reserve redundancies, leaving a narrower cushion over the next few years, according to "U.S. P&C Insurers Harvest Significant Reserve Redundancy."
The recent report says that a weak pricing environment is the main factor hampering P&C insurers' attempts to build reserves at the same pace seen in recent years.
According to Moody's, insurers reported less benefit from reserve releases in their 2009 statutory earnings compared to 2008, although the amount remains significant.
Meanwhile, Enrico Leo, author of the report, says, "Though we believe reserves are still redundant as of year-end 2009, we expect that as reserve releases taper off, coupled with lower investment yields, insurers will either raise prices or experience continued pressure on underwriting profitability. Continued deterioration for 2008 and 2009 accident years is likely to offset benefits received from older accident years, leading to a reduction in total reserve releases over the medium term."
Approximately $10 billion, or 1.9 percent, of prior year-end reserves was posted last year, the report said.
Meanwhile, over the last five years, reserve releases resulted from more favorable conditions of the previous hard market, including price increases and improved terms and conditions, favorable loss trends, and relatively low natural catastrophe activity, Moody's said.