Favorable Reserve Development Continued for US P-C Insurers in 2023

The US property-casualty (P-C) insurance industry's 2022 calendar-year results show a 17th consecutive year of favorable reserve development, according to A.M. Best.

However, in a new Best's Special Report, U.S. Property/Casualty Industry 2022 Loss and LAW Reserves Slightly Redundant, the rating agency noted that the insurers' $3.6 billion in favorable reserve development reported in 2022 was nearly one-third the level the industry reported in 2021.

The Best report said the US P-C industry carried reserves at the end of 2022 were redundant by $4.7 billion, 0.5 percent of the segment's reported surplus. The amount includes $7.5 billion of asbestos and environmental (A&E) deficiency and $18.1 billion of statutory discount, which is treated as a deficiency from the full value reserves, Best said.

After removing the effects of A&E and discounting, Best estimated that the US P-C industry's core undiscounted reserves were redundant by $30.3 billion at the end of 2022. Overall industry reserves at the end of 2022 were estimated to be $13.3 billion stronger than the reserves the industry reported at the end of 2021, Best said.

Best said the majority of reserve strengthening occurred in the other/products liability and personal auto liability lines, while reserves weakened in the workers compensation line. US P-C insurers' A&E reserves strengthened by $1.6 billion in 2022, while total core reserves strengthened by $11.7 billion.

The rating agency noted that the US P-C industry had faced numerous issues over the past few years, including social unrest, social inflation, extreme climate-related events, cyber attacks, and an extended shutdown of the global economy due to the COVID-19 pandemic. Those factors made determining year-end reserves challenging, Best said.

"Insurers are currently dealing with not only the ongoing effects of these issues, such as the backlog of claims in the court system, but also new issues such as supply chain shortages, higher-than-anticipated inflation, and litigation funding," a Best statement said.