Home›Insurance›Industry & Deals›Casualty insurers face $35 billion adverse reserve bui…

Casualty insurers face $35 billion adverse reserve buildup in general liability

Moody’s estimates cumulative adverse reserve development of more than $100 billion when commercial auto is included, driven by social inflation and faster litigation trends.

Reported · Written up by our desk · Industry & Deals

The U.S. casualty insurance market, with about $300 billion in annual premium, is accumulating large amounts of adverse reserve development that often goes largely undetected until it appears in insurers’ financial statements, according to a new report from Moody’s.

Moody’s said cumulative adverse reserve development has exceeded $35 billion in general liability over the past eight years, a total that approaches $100 billion when commercial auto is included. The report ties the gap partly to social inflation, as well as litigation finance and nuclear verdicts that can cause liability trends to evolve more quickly than prior-year reserve assumptions.

The report also highlighted asbestos as the industry’s most costly casualty accumulation event, estimating more than $100 billion in ultimate net insured losses. Moody’s said the exposure was recognized only after it had already embedded across insurers’ portfolios.

Moody’s pointed to U.S. Schedule P regulatory reporting that showed $8 billion in combined adverse reserve development in other liability occurrence, or general liability, in the most recent calendar year, after $10 billion in the prior year. It added that its CoMeta casualty catastrophe modeling platform can help identify emerging liability risks years before mass litigation begins, and it cited actuarial research describing reserve deficiencies as a lagging indicator of broader issues in underwriting and management decision making.

More like this

Sources