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Reserves developed favorably for P&C industry in 2015 despite AIG

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Reserves developed favorably for P&C industry in 2015 despite AIG

Althoughthe U.S. P&C industry as a whole saw favorable reserve development in 2015,to the tune of $7.33 billion, American International Group Inc. was anotable exception, based on a review of annual statutory data.

AIG'sreserve charges are by now well-known, with the company in a January investor updatethat it strengthened its pretax nonlife reserves by $3.6 billion in the fourthquarter of 2015. But the statutory data illustrates how AIG stacks up tononpublic peers such as Nationwide Mutual Insurance Co. and Whileboth of those companies recorded adverse development, their totals were a smallfraction of AIG's in 2015.

AIGprovided some additional insight on the source of its fourth-quarter 2015development in slides accompanying the January investor update. Of the$3.6 billion total, 35% was attributable to accident years 2004 and prior,while 41% came from accident years 2011 to 2014. The strengthening wasconcentrated in long-tail lines, including $1.2 billion from excess casualty,Sid Sankaran, AIG's chief risk officer, said during the call, according to atranscript.

Onecan get a sense of these trends from the statutory data as well. The"other liability" lines, both claims-made and occurrence, were themain culprit behind the total adverse development in AIG's U.S.-basedsubsidiaries, accounting for 73.6% of the total. Within the other liabilityline, accident years prior to 2006 served as the primary driver.

Anotherline spurring adverse development for AIG was commercial auto liability,producing about $420.8 million on a statutory basis. But AIG was far from alonein this. The U.S. P&C industry as a whole recorded $1.66 billion in adversedevelopment in the business line, continuing a witnessed for the past few years.

FBRCapital Markets analyst Randy Binner remarked on this trend during anRLI Corp. conferencecall held April 21. While RLI actually saw favorable development on this linein 2015, Binner asked about the environment in general.

"Is commercial auto ever goingto get better? This is a really long time to see a class have poorperformance," the analyst said, according to a .

CraigKliethermes, COO and president of RLI's insurance subsidiaries, responded thatcompetitors dropped their prices from 2011 to 2013 in an effort to maintain orgrow market share, and that competition is more rational now. Insurers are nowgetting significant rateincreases and are willing to let business walk away if the pricingis not adequate, in his view.

"Ithink they're not fooling themselves anymore," he said.

Recentaccident years were the primary catalyst for adverse development on thecommercial auto liability line in 2015, specifically accident years 2011 to2014, based on the statutory data. Looking at specific insurers, AIG recordedthe largest amount of adverse development in the aggregate, followed byLiberty Mutual Holding Co.Inc. and State FarmMutual Automobile Insurance Co., which reported $179.0 million and$84.6 million, respectively.

 

SNL Image

SNL offers a variety of tools to analyze loss reserve development of insurance companies. Click here for a template to replicate tables and triangles from Schedule P.