While insurance industry earnings are suffering through a soft market cycle, industry reserve adequacy remains one bright spot for insurers, according to a report from Fitch Ratings.
Examining the past 10 years, Fitch said the industry has built up a modest reserve redundancy for the end of last year, but that reserves will decline in the years to come. The hard market accident years (2003-2006) are likely to continue to develop redundantly, while the soft market accident years (1998-2001) are largely paid out.
"In the near term, calendar-year earnings will continue to benefit from favorable reserve development from prior underwriting periods, but accident-year loss ratios are likely to increase materially from prior years as market conditions erode further," Fitch said.
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