Analysts at Fitch Ratings have warned that US property and casualty (P&C) insurers face the potential for large incurred losses and future reserve deficiencies.
Deficiencies could result from a number of unpredictable areas that are difficult to incorporate in reserve adequacy estimates, the rating agency said.
Fitch therefore urges conservatism in choosing loss development factors in longer tail lines to help offset the potential for inflation levels that exceed assumptions built into reserve estimates
Other risk factors are not explicitly incorporated in the reserve adequacy analysis that may affect insurers’ reserve position going forward include pandemic related losses.
Although total incurred pandemic losses greatly diminished in 2021, Fitch notes that insurers continue to hold considerable IBNR reserves that may be insufficient if a spate of adverse judicial rulings for liability or business interruption claims unfold.
Insurers also face risks from the expansion in litigation and the uncertainty of growth in directors and officers liability risk as merger and IPO activity from special-purpose acquisition companies increases.
What’s more, various US states implemented revivor statutes in recent years that reopened claims windows for abuse claims that would previously have been limited due to statutes of limitations.
Finally, Fitch drew attention to concerns over a potential ‘next asbestos’ event that could generate multibillion losses for insurers that never dissipate.
