Conning Study Shows Reserve Shortfall

An industry deficiency of $16 billion, or 6 percent, in loss reserves spells trouble ahead for P/C insurers, according to a new study by Conning & Company, the Hartford-based investment and research firm that specializes in insurance. Of the nine lines reviewed, eight were short on reserves at the end of the year 2000. The seven commercial casualty lines studied showed reserve deficiencies amounting to $15.89 billion, or 8.2 percent. The Medical Malpractice Liability line alone was under-reserved by $3.4 billion, or 40.7 percent. Workers' Comp reserves were short $4.53 billion, or 7.3 percent. Conning noted that premiums are increasing across the board but still not enough to cover higher loss costs. "As a result, industry combined ratios continue to climb," Conning reported. The analysts pointed out that loss experience has worsened since 1997, compounded in 2001 by the World Trade Center catastrophe. They said insurance companies should increase reserves in most of these lines. The study suggested that deteriorating loss development might make matters worse. Conning strongly urged insurers to question reserving assumptions and not wait for serious problems to arise from growing shortfalls. The study, Property/Casualty Reserve Adequacy: Truth or Consequences," can be obtained from Conning & Company by calling toll free 888-707-1177 or 860-520-1245. The price is $950.

U.S. REviews   April  2002