Reserving of past years could cause an underwriter to collapse.
Past reserving of long-tailed liabilities may come back to haunt the industry according to ACE European Group chairman Andrew Kendrick.
Answering questions after an Insurance Industry of London market issues lecture at Lloyd’s today, Kendrick said long-term underwriting was the most likely cause of an underwriters collapse in the future.
He commented that any error in reserving for past years could result in a large period of reserves needing adjustment. “There will be a moment when there could be a realisation that reserves deficiency that’s been booked over the last 5, 10, 20 years suddenly becomes apparent,” he said. “And then you’ve got to deal with an enormous issue and that kills your balance sheet.”
Kendrick had been talking about the need for insurers to practice “sustainable underwriting” in a response to a weaker economy and a tougher marketplace than the industry was used.
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