The US property/casualty industry had shown resilience and improved risk management amid extraordinary events in the last decade, said a new study from AM Best.
Since 1996 the market has experienced wide fluctuations in annual impairment rates, said the ratings agency.
The common denominator among property/casualty financial impairments was a diminished operating environment, with impairment peaks often triggered or exacerbated by external factors affecting underwriting or investment results, it claimed. But despite recent near-term peaks in impairment rates, such events remained relatively rare.
The ‘Best's Insolvency Study, Property/Casualty' examines 871 financially impaired property/casualty insurance companies over a 34-year period, updating a 1991 report on the same subject.
It said the findings of the new report concurred with the previous research, namely that the frequency of financial impairments tended to move in tandem with the factors affecting company earnings, and that the predictive value of a Best's Rating in identifying the more vulnerable companies was confirmed.
AM Best said more than half of the impairments were caused by deficient loss reserves/inadequate pricing or by too-rapid growth. Often, financial or underwriting shocks pushed already vulnerable companies into impairment, it said.
The ratings agency also claimed that its ratings system had identified nearly all the companies approaching impairment by significantly lowering or removing the company's rating.
The full report is available for download from www.bestweek.com.
