US P&C Industry Statutory Reserve Study

Transcription

1 US P&C Industry Statutory Reserve Study Based on NAIC data through March 31, 2017 August 7, 2017 Prepared by

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 Proprietary & Confidential 1

3 Industry Reserve Study Highlights (6M) All Lines Historical Industry Reserve Redundancy/(Deficiency) Commercial Personal Lines B 1.8 B (1.8) B (4.2) B 6.5 B 6.1 B Overall industry redundancy at year end 2016 of USD1.8 billion equivalent to 0.3 percent of booked reserves Commercial lines deteriorated significantly with an overall deficiency position of USD4.2 billion at year end 2016 compared to an estimated USD1.8 billion deficiency at year end 2015 Personal lines continued to show a redundancy of USD6.1 billion at year end 2016, though not as strong as the redundancy of USD6.5 billion at year end 2015 Proprietary & Confidential 2

4 US P&C Industry Reserve Development ( ) 25 One Year Reserve Development ($B) Adjusted * (5) (0.3) (0.6) (10) (15) (20) (25) (11.1) (22.3) (10.5) (14.1) Calendar Year *Adjustments include Financial Lines development in and AIG adverse development in development per P&C Industry data as compiled by SNL through April 18, 2017 Total favorable development in 2016 of USD4.5 billion Proprietary & Confidential 3

5 Estimated US Reserve Adequacy at YE 2016 (USD Billions) Reserve Development Summary ($B) Estimated Booked Est. Redundancy Favorable / (Adverse) Development Line Reserves Reserves at YE Personal Lines Commercial Lines (4.2) Commercial Property Commercial Liability (7.9) (1.4) (2.7) Workers Compensation Financial Guaranty (0.1) (0.2) Total P&C Industry undiscounted statutory reserves as of December 31, 2016 estimated to be USD1.8 billion redundant USD4.5 billion reserves released in calendar year 2016, the lowest amount since 2008 Proprietary & Confidential 4

6 Drivers of 2016 Reserve Adequacy Deterioration All Lines 8 Drivers of 2016 Reserve Adequacy Deterioration All Lines ($B) YE2015 Reserve Redundancy Reserves Released During 2016 Prior Year Adverse Loss Emergence Accident Year 2016 Redundancy YE2016 Reserve Redundancy The total amount of industry reserve redundancy declined USD3.0 billion during 2016 Waterfall exhibit shows that the decline is driven by: Large amount of reserves released during 2016 and prior years adverse loss emergence totaling USD6.4 billion, offset by AY2016 conservatism worth USD3.4 billion Proprietary & Confidential 5

7 Drivers of 2016 Reserve Adequacy Deterioration Personal & Commercial Lines Drivers of 2016 Reserve Adequacy Deterioration Commercial Lines ($B) Drivers of 2016 Reserve Adequacy Deterioration Personal Lines ($B) YE2015 Reserve Deficiency Reserves Released During 2016 Prior Year Adverse Loss Emergence Accident Year 2016 Deficiency YE2016 Reserve Deficiency 0 YE2015 Reserve Redundancy Reserves Released During 2016 Prior Year Adverse Loss Emergence Accident Year 2016 Redundancy YE2016 Reserve Redundancy Commercial lines reserve deficiency declined USD2.4 billion during 2016 Driven by USD1.8 billion in reserve releases in 2016 Prior year adverse loss emergence and AY2016 deficiency further amplify the deficiency by approximately USD0.7 billion Personal lines reserve redundancy declined USD0.4 billion during 2016 Driven by USD2.7 billion in reserves released during 2015 and USD1.2 billion in prior year adverse loss emergence, offset by AY2016 conservatism worth approximately USD3.4 billion Proprietary & Confidential 6

8 Summary of Favorable / (Adverse) Reserve Development Q by Company Focus 2017 Q1 Reserve Development Summary Favorable / (Adverse) Company Focus Development ($B) Personal 3.9 Commercial 1.7 Other 0.0 Total 5.6 Source: SNL Financial Companies continued to release reserves in the first quarter of 2017 Over 50 percent of the year end 2016 personal lines redundancy Increased pressure on commercial lines as more releases despite significant deficiency at year end 2016 Proprietary & Confidential 7

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 Proprietary & Confidential 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 2016 data based on aggregation of NAIC Annual Statement data via SNL Financial Data as of April 18, 2017 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 2007 divided by most recent Case-Incurred or Paid Loss for AY 2007) Accident Years Prior to 2007 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 Proprietary & Confidential 9

11 Contacts Greg Heerde Head of Analytics & Inpoint, Americas Brian Alvers, FCAS, MAAA Head of Americas Actuarial Analytics Jonathan Lim, FCAS, MAAA Associate Director Analytics Proprietary & Confidential 10

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. Proprietary & Confidential 11