The US property/casualty market is suffering from a reserve deficiency of between US$46bn and $77bn at year-end 2002, revealed a new report from Fitch Ratings.
According to a report, the company claimed that the deficiency was now equal to between 10% and 17% of total reserves and between 16% and 26% of reported surplus.
This could lead to material overstatements in statutory capital, with recognition of the deficiencies leading to a drain on future earnings, said the report.
Fitch estimated losses from asbestos related exposures went up from $4.1bn in 2001 to $9.3bn in 2002.
Fitch senior director James Auden, said: "The property/casualty insurance reserve deficiency is a function of the chronic under-pricing in casualty lines in the 1990s, as well as unexpected recent increases in key loss cost drivers, particularly medical costs and litigation and settlement costs.
"The reserving shortfalls highlight how inherently risky long-tail business can be, how challenging it is to estimate losses in these segments and, at times, how little reliance or comfort can be placed on a sincere management effort to establish reserves at adequate levels."
