A.M. Best Special Report: U.S. Property/Casualty Impairments Continue Downward Trend

OLDWICK, N.J.--()--The U.S. property/casualty (P/C) industry experienced 12 financial impairments in 2014, representing a continuing decline since the most recent peak in 2011, according to a new A.M. Best special report. Impairments in 2014 were down slightly from the 15 reported in the prior year and amount to a little more than half of the historical average of 25 impairments over the study period of 1969-2014.

The Best’s Special Report, titled, “Property/Casualty Impairments Continue Downward Trend,” says the 12 known P/C impairments in 2014 were more in line with figures seen consistently during the 1970s. While 2014 impairments were well below the historical average count, they again far exceed life/health impairments, which although up in 2014, amounted to five.

The P/C industry’s 2014 financial impairment frequency (FIF)—a more accurate indicator of impairment trends than a mere count—was 0.39%, remaining well below the industry’s historical average of 0.81%.

Rating trends are a key indicator of the financial health and stability of the insurance industry, because there is generally an accelerating trend in the degradation of ratings before impairments increase. Together, personal property and private passenger non-standard auto made up about one-third of the 2014 impairments.

Coming into 2015, A.M. Best maintained a negative outlook for the commercial lines segment, which reflected ongoing concerns about adverse loss reserve development, low investment yields and a moderation in commercial lines pricing. The negative outlook was initiated in 2011 and concerns remain that some commercial lines carriers have yet to recognize loss reserve deficiencies in their balance sheet and the fact that current pricing levels, as well as reserves, may not support future loss-cost trends. A.M. Best did maintain its stable outlook for U.S. personal lines as results continue to reflect the consistency of the auto line, with generally favorable, low-volatility performance year over year.

For the year ending Dec. 31, 2014, the P/C industry posted a second consecutive year of profitable underwriting results. Policyholders’ surplus increased by USD 21.9 billion to USD 666.4 billion, yet another record level for the industry.

Deficient loss reserves/inadequate pricing remains the most frequent mentioned cause of impairment. Underscoring a hazard that can lead financially weak or poorly managed insurers into difficulty—is heavy concentrations of business in one or a handful of product lines or in a single state or region. Single state concentrations also correlated heavily with FICs; nearly half of FICs in the past 12 years were single state writers.

Impairments due to deficient loss reserves tend to escalate during and at the end of soft markets. In 2002, 2004 and 2005, deficient loss reserves were cited as the chief cause of more than 42% of all P/C impairments. In 2014, deficient loss reserves (inadequate pricing) again were the leading cause of impairment, at 72.7%.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=240129.

To access a copy of the life/health impairments special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=239919.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company, Inc.
Anthony Diodato, 908-439-2200, ext. 5704
Group Vice President
anthony.diodato@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best Company, Inc.
Anthony Diodato, 908-439-2200, ext. 5704
Group Vice President
anthony.diodato@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com