Howden raises concerns over reserve deterioration

Howden, a global re/insurance broker, has outlined concerns regarding reserves stemming from unexpected rises in claims costs and higher inflation.

Wolfram Schultz, Head of Casualty for Continental Europe at Howden Tiger, shares his insights on reserving, describing it as “uncertain”.

Schultz raises concerns about potential reserve deterioration due to unexpected developments in claims and delays caused by COVID-19. He explains, “The adverse developments of the claims years 2013 to 2019, which are representing the soft market phase before the hardening which started in 2019 and post. We have got specific delays in claims related to COVID, which are now hitting codes and where we can see some developments.”

Furthermore, Schultz mentions that some reinsurers anticipate future losses and prolonged development of large losses, which will take longer to realise.

Moreover, Schultz notes that reserve declines are also influenced by higher inflation costs and social inflation, possibly linked to political unrest. “So, here people want to see judgments, which from their point of view will make a clear statement related to liabilities,” Shultz adds.

Schultz also warns that reserves after 2019 may be underestimated. “This is another concern, because many of the reserves going forward 2021, 2022, 2023 are based on the assumption of 2020, but if loss reserves of the prior years need to be changed, the assumption for 2020 was possibly too low,” he explains.

George Hughes, Managing Director at Howden Tiger, agrees with Schultz’s points but believes “it is an issue that appears to be in hand”, so reserves aren’t considered a serious problem.

David Flandro, Head of Industry Analysis and Strategic Advisory at Howden Tiger, shares his perspective on the reserving environment. He remarks, “It’s obvious that we are facing headwinds in medium and long tail lines.”

“Social inflation, litigation, financing trends in D&O, and US third party auto liability, for example, remain acute. This said, now that we have all of the numbers in for P&C across the globe, when we look at it on an accounting year basis, we still see net redundancies.”

Flandro concludes, “To date, it doesn’t look like the liability crisis of 20 years ago has yet materialised.”

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