Reserving Investment Priorities Shift for P&C Insurers, According to Willis Towers Watson

ARLINGTON, Va., Sept. 21 -- Willis Towers Watson, an advisory, broking and solutions company, issued the following news release:

Less than one-third (30%) of chief actuaries and chief reserving actuaries from leading U.S., Canadian and Bermudan property and casualty (P&C) insurers say they are fully satisfied with their overall reserving processes, according to Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company. Respondents to the company's most recent Current Trends in P&C Reserving Practices Survey cite key person risk and limited time to perform detailed value-added analyses as their top concerns; nearly a quarter say they are dissatisfied with these two important components of the reserving process.

The number of participants fully satisfied with the accuracy and confidence (48%) of their reserving decreased 15 percentage points compared with Willis Towers Watson's previous reserving survey two years ago. "The fairly dramatic decline in insurers' full satisfaction with reserving accuracy and confidence may coincide with an inflection point in the reserving cycle," said Joseph Milicia, P&C M&A practice lead for the Americas, Insurance Consulting and Technology, Willis Towers Watson. "Over the past decade, the industry's bottom line has benefited from consistent reserve releases; the need to monitor for and respond to the eventual tempering of the benign loss trends that drove those releases may be behind this focus on accuracy," Milicia went on to say.

Responses point to the importance of efficiency in the reserving process: Software moved up significantly on the list of insurers' investment priorities since the last survey. Speedy, consistent management reporting topped the list of priorities over the next two years (41%), while the number of respondents planning significant investments in software increased considerably (24%) compared with two years ago (15%). "The focus on efficient use of resources and the increased importance of value-added processes are encouraging signs that reserving is readying to follow the industry's process transformation trend," said Milicia.

"On the other hand, innovation in operations, including claims handling, the evolution of products and changes in the nature of risks require going beyond traditional reserving techniques. The reserve function may need to move faster to be prepared," added Milicia, observing that 35% of respondents reported plans to implement individual claims reserving methodologies, an example of nontraditional approaches.

"Insurers' reserving functions remain critical to their financial health and stability," said Milicia. "Reserving acts as an important check and balance but can also offer actionable and timely insights to the business, from underwriting to claims to capital modeling, and provides key input to strategic decisions. A robust, efficient and engaged reserving function can be a competitive advantage. Our survey shows encouraging signs but also areas for further work toward that goal."

About the survey

The Current Trends in P&C Reserving Practices Survey was conducted online in 2016. Fifty-four chief actuaries and/or chief reserving actuaries participated in the survey. Participants were based in the U.S., Canada and Bermuda. Survey questions were organized into four categories: structure, process, reserving methodologies and interactions with other departments.