Fitch Releases New U.S. Property/Casualty Insurer Loss Reserve Volatility Report

Proquest LLC

Fitch Ratings' perspective on differences in loss reserve volatility across business segments and by company is provided in a new special report titled 'U.S. Property/Casualty Insurer Loss Reserve Volatility'.

The report studies loss reserve volatility for 10 major business segments utilizing historical statutory Schedule P data from calendar years 1996-2012 for a group of 100 individual U.S. property/ casualty (P/C) insurer groups, which represent approximately 85 percent of industry aggregate premiums.

The analysis reveals wide variations in volatility by segment. Private passenger auto liability is the least volatile segment due to its short-tail nature, high policy count and low average claims cost. Longer-tail liability lines have the highest volatility, particularly product liability and medical professional liability.

Loss reserve related parameters in Fitch's Prism capital model for P/C insurers include current reserve adequacy estimates, loss reserve volatility and duration of claim payments. Target capital levels in the model are highly sensitive to changes in reserve volatility estimates.

Loss reserve volatility measures for individual companies reveal a wide range of results, and also an indication of how diversification in product lines that are not perfectly correlated affects overall volatility estimates. The report includes an exhibit comparing reserve volatility estimates and Prism scores at yearend 2012 for a group of U.S. P/C insurers, revealing that it is possible for insurers with relatively high estimated loss reserve volatility to generate favorable Prism scores.

The full report, 'U.S. Property/Casualty Loss Reserve Volatility' is available at 'fitchratings.com' under the following headers: