February 24th, 2011

Chart: Property & Casualty Accident Year Reserve Development

Posted at 10:00 AM ET

Accident year loss experience is beginning to show signs of lower reserve margins. The chart below¬†shows U.S. P&C industry reserve development by accident year since 2000. The reserving cycle is evident in the graph with adverse accident year loss development during the “soft market” years of 2000 and 2001 and favorable development between 2003 and 2007. The orange line in the graph shows the average initial loss ratio pick. The old reserving adage that “good years get better and bad years get worse” appears to be borne out here.

fig-13

Although more recent accident years are less mature, it is interesting that the trend of favorable development seems to be diminishing rapidly, with unfavorable development already coming through for accident year 2008 (although this included significant adverse development on mortgage indemnity business). The broader question is,
of course, when does the sum of development turn unfavorable?

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