Last year was good enough for insurers that they released $18.6 billion from reserves and still ended 2009 with higher reserve levels to pay catastrophe claims, says Hartford analyst Conning Research & Consulting Co.
But Conning is joining others in warning that the good run may be at an end for the time being and that insurers – and insurance consumers — should begin bracing for leaner times and higher premiums.
Conning’s annual review of preliminary statutory filing data for 2009 show property-casualty insurers’ reserves more than covered what they forecast to pay in claims losses last year, said research director Stephan Christiansen.
Excluding reserve releases in the financial and mortgage guaranty lines, $11 billion were released in covered lines in 2009 from years 2008 and prior-2.2 percent of reserves carried in the prior year, Christiansen said.
Reduced claims can be traced partly to the sluggish economy, which curbed the exposure of the world’s businesses and consumers to property and casualty losses, he said.
However, amid signs that much of the global economy is improving, particularly in the U.S., claims levels are at risk of increasing along with the need for greater reserves.
“In light of this,” Christiansen said, “insurers should be thinking now about how an increase in liability trends or a significant spike in inflation in the out years might affect legacy loss reserves.”
Last week, a top insurance analyst for investment broker-researcher Stifel Nicolaus forecast  a steep rise in property-casualty rates for 2012.
Insurers build reserves by setting aside a portion of the premiums they collect and income from their investments in assets backing those reserves.
In good years, such as 2009, when claims are lower than projected, insurers can share the wealth with stockholders by siphoning off some of the reserves into earnings.
In years when disaster claims exceed what insurers had budgeted in reserves, they may need to put aside more of their premiums into reserves, or dip into earnings or sell assets to pay claims.
