By extrapolating reserving trends, it may be possible to assess the sector’s reserve adequacy. Two cyclical patterns are clear.
- The cycle turned on an accident year basis in 2004. Industry-wide accident year deterioration now appears imminent.
- Guy Carpenter’s view of the cycle shows that over the last 30 years, accident years that begin to show deteriorating results continue to deteriorate.
With these trends in mind, Guy Carpenter’s expectation is that the U.S. P&C industry will continue to release reserves, but that 2012 reserve releases will be less than the 2011 release. Although we expect accident years from 2011 will show reserve deterioration, we believe accident years 2010 and prior will continue to release reserves, and this should offset any deterioration in financial years 2012 and 2013. The industry may therefore only start to see deteriorating reserves in 2014 financials or beyond. However, for some carriers that write specific lines like workers compensation, net reserve deterioration has already begun. Other lines that have also started to show deteriorating results in the most recent accident years are general liability claims made and products liability claims made (see Figures 1 and 2).