Workers’ compensation reserves appear to be improving, despite noted deterioration over the last year, according to Guy Carpenter’s updated analysis of the reserve cycle.
Guy Carpenter examined accident year data for 11 lines of business to update its analysis of the reserve cycle.
Medical professional liability and commercial multi-peril lines also appear to be making tentative turns to show greater reserve release, while other lines such as commercial auto liability have continued to exhibit deterioration.
“Guy Carpenter looks at the reserve cycle differently, by studying reserve movements by accident year, rather than financial year,” said Jessica Leong, lead casualty specialty actuary at Guy Carpenter.
"By analysing the cycle the same way actuaries do, by accident year, the trends are clearer. We can help our clients better understand the drivers of the cycle and navigate through it. According to our analysis, accident year 2013 shows more releases than accident year 2012, not less, as we had been expecting.”
A major driver of the continued release of reserves can be attributed to homeowners and private passenger auto lines, which are responsible for 70 percent of the improvement for accident year 2012.
But there is a lack of a clear cycle for short tailed lines, which makes it challenging to predict whether accident year 2013 will continue to show releases in 2014.
“The somewhat random movement of the reserve cycle for short tailed lines of business, such as homeowners and private passenger auto lines, makes it harder to predict what the future holds for the 2013 accident year,” said Leong.
“However, long tailed lines such as workers’ compensation, medical professional liability and commercial multi-peril, also released more reserves for accident year 2012 than for accident year 2011. That is much more interesting, since these long tailed liability lines are very cyclical.”
