US P&C carried reserves at year-end 2022 redundant by $4.7bn of reported surplus: AM Best

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According to global ratings agency AM Best, the US property & casualty (P&C) segment reported its 17th  consecutive year of favorable reserve development based on 2022 calendar year results, however, the $3.6 billion in favorable reserve development reported for last year was nearly one-third of the level reported in 2021.

The agency explains that the P&C industry’s carried reserves at year-end 2022 are redundant by $4.7 billion, or 0.5% of its reported surplus.

This amount includes $7.5 billion of asbestos & environmental (A&E) deficiency, as well as $18.1 billion of statutory discount, which is treated as a deficiency from the full value reserves.

Moreover, from a historical standpoint, the most recent accident year usually contributes the largest portion of total favorable runoff. But, during calendar year 2022, the largest contribution came from the 2020 accident year, the year  that was most impacted by the COVID-19 pandemic, while a much smaller contribution came from the 2021 accident year.

Best noted that after removing the effects of A&E and discounting, the agency estimates the industry’s core undiscounted reserves to be redundant by $30.3 billion at year-end 2022.

At the same time, overall industry reserves as of year-end 2022 are estimated to be $13.3 billion stronger than reserves reported as of year-end 2021.

Best also noted that the majority of reserve strengthening occurred in the other/products liability and personal auto liability lines, with reserves weakening in the workers’ compensation line. A&E reserves increased by $1.6 billion in 2022, while total core reserves, rose by $11.7 billion.

It also important to note, that reserve positions by line of business vary dramatically, ranging between $4.7 billion deficient in commercial auto liability to $11.5 billion redundant in the short-tailed lines, according to data from Best.

Further, it is very clear that the US P&C industry has faced a number of obstacles over the past several years, ranging from social unrest, social inflation, extreme climate-related events, cyber attacks, and an extended shutdown of the global economy due to the COVID-19 pandemic.

Best stated that insurers are currently dealing with not only the ongoing effects of these issues, but also new issues too such as supply chain shortages, higher-than-anticipated inflation and litigation funding.

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