Reserve strengthening in the P&C Re casualty segment in Q3 was based on “more pessimistic assumptions of the ultimate loss cost”, as Swiss Re took the opportunity to strengthen the overall level of reserves, suggests John Dacey, Group Chief Financial Officer.
Dacey’s comments stem from Swiss Re’s Q3 earnings call, in which he discussed the notable reserve strengthening witnessed in the P&C Re casualty segment.
Dacey underlined one of the things Swiss Re did this year is to change its combined ratio target for P&C Re from a normalised target to a reported target.
This means it includes not only the current year events, but any reserve strengthening that the firm might be doing as well, he explained.
“As we went through the third quarter one of the things we’ve done, and we continue to do is just evaluate the overall reserve positions. There are places where we have redundancies and places where we saw the opportunity to do some further strengthening,” Dacey said.
Concerning US casualty, he noted that strengthening was “largely based on more pessimistic assumptions of ultimate loss cost, and so these go into what we refer to as IBNR, (incurred but not reported positions).”
Dacey observed that this reflected the firm’s view that ultimate costs in this portfolio may have been worse than what they previously anticipated.
He continued, “Some of those assumptions were driven by experiences that we saw in discussions with clients in the first half of the year, where we also did some strengthening. At six months, almost all of it was covered by the release of redundancies and other parts of the portfolio.”
Dacey said that Q3 offered an opportunity to put up these IBNRs on an assumption basis to “be more comfortable with the overall level of reserves.”
Within P&C Re, Swiss Re reported a Q3 property combined ratio of 64.0%, a casualty combined ratio of 138.8% (including reserve additions in liability and motor), and a specialty combined ratio of 85.3%.
This brought the Q3 total combined ratio to 93.7%, while the nine-month total stood at 94.3%.
Dacey concluded, “I’m not prepared to say that we couldn’t do more, but I take very seriously the targets we’ve got out in the market that say we will deliver a better than 95% combined ratio for P&C Re, and we’ll continue to evaluate where the reserve levels are as we go through quarter by quarter.”
