Guy Carpenter has released a report that suggests that the insurance industry is continuing to benefit from increased reserve releases.
The broker has updated its analysis of the reserve cycle by examining accident year data for eleven lines of business.
According to its analysis, workers' compensation reserves appear to be improving. Similarly, medical professional liability and commercial multi-peril lines appear to be making tentative turns to show greater reserve releases in accident year 2012 than expected.
Conversely, other lines such as commercial auto liability continued to exhibit deterioration.
“Guy Carpenter looks at the reserve cycle differently, by studying reserve movements by accident year, rather than financial year,” says Jessica Leong, lead casualty specialty actuary at the broker, who believes the trends are clearer as a result of analysing the cycle by accident year, the same way actuaries do.
“We can help our clients better understand the drivers of the cycle and navigate through it. According to our analysis, accident year 2013 shows more releases than accident year 2012, not less, as we had been expecting.”
A major driver of the continued release of reserves can be attributed to homeowners and private passenger auto lines, which are responsible for 70 percent of the improvement for accident year 2012. However, there is a lack of a clear cycle for short tailed lines, which makes it tough to predict whether accident year 2013 will continue to show releases in 2014.
“The somewhat random movement of the reserve cycle for short tailed lines of business, such as homeowners and private passenger auto lines, makes it harder to predict what the future holds for the 2013 accident year,” observes Leong.
“However, long tailed lines such as workers compensation, medical professional liability and commercial multi-peril, also released more reserves for accident year 2012 than for accident year 2011. That is much more interesting, since these long tailed liability lines are very cyclical.”
Guy Carpenter, analysis, reserves