U.S. P&C Industry Statutory Reserve Study

Transcription

1 U.S. P&C Industry Statutory Reserve Study Based on NAIC data through March 31, 2016 July 25, 2016 Prepared by Analytics

2 Disclaimer This study provides directional evidence about the aggregate adequacy of industry reserves and tries to capture the effects that may not be apparent or credible in any individual company s data This study is not intended, and should not be construed, as an actuarial reserve opinion This study was compiled from sources that believes to be reliable. However, Aon Benfield makes no representation or warranty as to the accuracy, reliability of completeness of such information, and the information should not be relied upon in isolation in making business, investment or similar decisions 1

3 Industry Reserve Study Highlights Reserve /(Deficiency) in $Billions All Lines Commercial Lines 2014 (2.0) 2015 (1.8) Personal Lines (4.0) (2.0) Overall industry redundancy at year end 2015 of USD4.8 billion equivalent to 0.8 percent of booked reserves Commercial lines improved slightly but concluded with an overall deficiency position of USD1.8 billion at year end 2015 compared to an estimated USD2.0B deficiency at year end 2014 Personal lines continued to show a redundancy of USD6.5 billion at year end 2015, though not as strong as the redundancy of USD8.3 billion at year end

4 U.S. P&C Industry Reserve Development ( ) 25 One Year Reserve Development ($B) Adjusted * (5) (0.3) (0.6) (10) (15) (20) (25) (11.1) (10.5) (14.1) (22.3) Calendar Year *Adjustments include Financial Lines development in and AIG adverse development in development per P&C Industry data as compiled by SNL through May 27, 2016 Total favorable development in 2015 of USD7.3 billion 3

5 Estimated U.S. Reserve Adequacy at YE 2015 (USD Billions) Reserve Development Summary ($B) Estimated Booked Est. Favorable / (Adverse) Development Line Reserves Reserves at YE Personal Lines Commercial Lines (1.8) Commercial Property Commercial Liability (2.7) (1.4) Workers Compensation (0.3) (0.0) Financial Guaranty (0.3) (0.4) (0.2) 0.6 Total P&C Industry undiscounted statutory reserves as of December 31, 2015 estimated to be USD4.8 billion redundant USD7.3 billion reserves released in calendar year 2015, the lowest amount since

6 Drivers of 2015 Reserve Adequacy Deterioration All Lines Drivers of 2015 Reserve Adequacy Deterioration All Lines ($B) YE2014 Reserve Reserves Released During 2015 Prior Year Favorable Loss Emergence Accident Year 2015 YE2015 Reserve The total amount of industry reserve redundancy declined USD1.5 billion during 2015 Waterfall exhibit shows that the decline is driven by: Large amount of reserves released during 2015 of USD7.3 billion, offset by Favorable prior year loss emergence and AY2015 conservatism worth USD5.8 billion 5

7 Drivers of 2015 Reserve Adequacy Deterioration Personal & Commercial Lines Drivers of 2015 Reserve Adequacy Deterioration Commercial Lines ($B) Drivers of 2015 Reserve Adequacy Deterioration Personal Lines ($B) YE2014 Reserve Deficiency Reserves Released During 2015 Prior Year Favorable Loss Emergence Accident Year 2015 YE2015 Reserve Deficiency 0 YE2014 Reserve Reserves Released During 2015 Prior Year Adverse Loss Emergence Accident Year 2015 YE2015 Reserve Commercial lines reserve deficiency reduced USD0.2 billion during 2015 Driven by USD3.3 billion in reserve releases in 2015, offset by Favorable prior year loss emergence and AY2015 conservatism of approximately USD3.5 billion Continued reserve releases during Q of USD2.1 billion have pushed the commercial sector further into the hole Personal lines reserve redundancy declined USD1.8 billion during 2015 Driven by USD3.9 billion in reserves released during 2015, offset by Favorable prior year loss emergence and AY2015 conservatism worth approximately USD2.2 billion Some carriers have already released another USD3.3 billion of reserves through Q

8 Summary of Favorable / (Adverse) Reserve Development Q by Company Focus 2016 Q1 Reserve Development Summary Favorable / (Adverse) Company Focus Development ($B) Personal 3.3 Commercial 2.1 Other (0.0) Total 5.3 Source: SNL Financial Companies continued to release reserves in the first quarter of 2016 Over 50 percent of the year end 2015 personal lines redundancy Increased pressure on commercial lines as more releases despite deficiency at year end

9 The Reserve Cycle by Line Will History Repeat Itself? Percentage of Industry Reserve Development by Year: Adverse vs. Favorable Commercial Auto Other Liability 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% % Medical Liability Workers' Compensation 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% % % of Development that was Adverse % of Development that was Favorable 8

10 Data Sources and Reserve Methods Applied Schedule P parts 1 5 were used to obtain the following: Earned Premiums Paid, Case Incurred, & Incurred (Ultimate) Loss Triangles P&C Industry 2015 data based on aggregation of NAIC Annual Statement data via SNL Financial Data as of May 27, 2016 is based on majority of industry, but may change as additional annual statements are filed and aggregated Determine reserve levels indicated by mechanical application of actuarial techniques Three and five year weighted average link ratios applied to paid and case incurred loss triangles Hierarchical Growth Curve model applied to most lines Tail factors based on current booked tail factor (Booked Ultimate Loss for AY 2006 divided by most recent Case- Incurred or Paid Loss for AY 2006) Accident Years Prior to 2006 Prior year reserves estimated based on observed decay rate of prior year paid losses Methodology makes no explicit provision for Asbestos & Environmental (A&E) reserves For workers compensation, the analysis is based on nominal data Other industry studies on workers compensation reserves may include tabular and/or non-tabular discounts as part of the industry s reserve adequacy (i.e., discounts reduce the industry s reserve adequacy) This study does not include discounts as a reduction in reserve adequacy 9

11 Contacts Greg Heerde Head of Analytics & Inpoint, Americas Brian Alvers, FCAS, MAAA Head of Americas Actuarial Analytics Jonathan Lim, ACAS Senior Analyst Analytics

12 About, a division of Aon plc (NYSE: AON), is the world s leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how helps empower results, please visit aonbenfield.com All rights reserved. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. reserves all rights to the content of this document. 11