Yesterday’s PropertyCasualty360 reported on FitchRatings’ latest views on the status of reserves in the Property and Casualty (P&C) insurance industry. For those new to this world, ‘reserves’ are the funds set aside to pay the future costs for claims.
Reserves can be “adequate”, which means the dollars set aside look to be enough to cover future liabilities; “deficient”, which means there aren’t enough funds; or “redundant”, which means they are more than adequate. In Fitch’s view, “U.S. property and casualty loss reserves remain within an adequate range as of year-end 2010, and the potential for large deficiencies emerging in the near-term is limited”.
That’s good news, but before you start smiling, know that another analyst views reserves as “deficient”.
So, who cares?
Well, you should.
If reserves are adequate, insurers won’t need to charge new policyholders more to make up for losses already incurred. If they are deficient, rates are going up. And if they are redundant, than new customers may well get a discount, as there is ‘extra’ money lying around to help cover their claims.
It’s not quite that simple, but you get the picture.
What is notable is where the two analysts agree: both believe workers comp is under-reserved. Keefe Bruyette Woods says the deficit is $2.3 billion and Fitch did not provide a figure in their release.
With work comp reserves at the end of 2010 totaling about $115 billion, that’s a deficiency of about 2%.
What does this mean for you?
Another sign that the market may be firming. Or at least not softening any more.
Aug
24
