US liability lines report significant adverse reserve development in 2024

The US insurance industry experienced its second-worst annual adverse development across any single reported business line during the past 20 years in 2024.

The industry's unfavorable reserve development within the other liability occurrence business line ballooned to $9.98 billion in 2024, according to an analysis of reserve data by S&P Global Market Intelligence. This reserve strengthening was more than double the amount from the previous year and significantly exceeded the median annual adverse development of about $2.6 billion recorded between 2015 and 2023. It also represents the highest annual reserve strengthening for any single reported line of business since the 2008 financial crisis, when US insurers increased their financial and mortgage guarantee reserves by $12.64 billion.

The other liability regulatory reported business line encompasses a wide range of liability coverages such as general liability, commercial excess and umbrella, errors and omissions (E&O), and cyber insurance. Within the various subtypes of insurance, the client may choose between a claims-made or occurrence policy. An occurrence policy provides coverage for incidents that happen during a policy period, regardless of when the policyholder files a claim.

The substantial increase in reserve strengthening observed in 2024 stems from companies significantly raising the loss reserves for more recent accident years, a departure from prior calendar years. In 2024, the total reserve strengthening for the three most recent accident years, 2021 through 2023, amounted to $4.71 billion. In previous annual statements, although there was significant adverse development, it primarily affected older accident years, with the three most recent accident years adjusted by $603.0 million for calendar year 2023, $468.6 million during 2022 and $180.6 million in 2021.

The US-domiciled units of Everest Group Ltd. were some of the most aggressive companies in raising reserves in 2024 on their three most recent accident years. The insurer raised its other liability occurrence reserves by $1.23 billion in 2024, with roughly $970.5 million coming from its three most recent accident years. The insurer observed "upward pressure on loss ratios" on its accident years prior to 2021, causing the insurer to reassess its ultimate losses for its more recent accident years, according to Mark Kociancic, CFO of Everest Re.

Kociancic added that the COVID-19 pandemic helped mask the impact of social inflation on its claims experience and projected loss development, noting that the heightened claims activity observed in 2024 was partly due to the backlog of accumulated claims during the pandemic years that is moving through the US court system.

The US liability market has a "fundamental issue with social inflation and the way that the legal system works," according to Urs Baertschi, CEO of property and casualty reinsurance for Swiss Re AG, during the company's management dialogue event in December 2024.

"If you look at some of the indicators around a number of class action lawsuits ... [the] number of nuclear verdicts, average size of a nuclear verdict, the amount of litigation funding that's out there, they're all trending in one direction," Baertschi said, adding that the issues facing the US liability market, particularly occurrence-based products, are not going away.

"The big debate amongst the primary insurers out there is, do you get enough rate to stay ahead of [the] trend. And the reinsurers, by the way, are making the same kind of judgment," Baertschi added.

Liberty Mutual Holding Co. Inc.'s $1.84 billion in adverse prior-year reserve development within the other liability occurrence line was the largest among US insurers in 2024, with $512.7 million occurring in the three prior accident years.

State Farm Mutual Automobile Insurance Co.'s adverse one-year development of $902.8 million was the third largest during the most recent calendar year. Roughly $700 million of State Farm's reserves strengthening were for accident years 2021 through 2023.

The favorable development of $427.8 million for AXIS Capital Holdings Ltd.'s US units was the largest within the business line in 2024.

Coverage breakout

A new reporting exhibit, starting with the 2023 annual regulatory statements, offers a more detailed view of direct premiums written and paid and unpaid losses from the diverse set of risks contained within the individual reported business line. However, the exhibit does not differentiate between occurrence- or claims-made-based products.

– Download a template that replicates Schedule P reserve triangles for any line of business. – Download a template to analyze the property and casualty insurers' historical market share across all lines of business.

The exhibit reported that US insurers had $122.03 billion in direct premiums written within the other liability business lines in 2024. The largest individual segment was commercial excess and umbrella, with direct premiums written totaling $36.72 billion, followed by commercial general liability with direct premiums of $31.34 billion and E&O at $12.89 billion. Among the 10 specific business lines detailed, E&O, director and officer, employment liability and excess workers' compensation experienced year-over-year declines in direct premiums.

Additionally, the "other" classification — encompassing liability coverages not specifically categorized under any of the other listed business line definitions — also reported lower premiums in 2024.

The personal umbrella business line reported the highest paid loss ratio among the group at 61.9% in 2024.

Off to a rocky start in 2025

For only the third time in the past 24 years, the industry's direct incurred loss ratio for the first quarter within the other liability occurrence business lines exceeded 65%. In the first three months of 2025, the industry reported a direct incurred loss ratio of 66.9%, showing a slight improvement from the 67.6% loss ratio recorded during the same period in 2024. The only other instance occurred in the first quarter of 2002 when the industry recorded a direct incurred loss ratio of 65.9%.

S&P Global Market Intelligence conducted an analysis of Schedule P data contained within annual regulatory statements, which is the basis of this article. However, S&P Global Market Intelligence does not offer an opinion on the adequacy of the reserves of any company or the industry in aggregate or in any individual line of business.