Reserving strategies are at the heart of how insurance carriers manage solvency, profitability, and competitiveness, but strategies can differ based on business model, risk appetite, and market position.
Carriers opting for a more conservative reserving strategy tend to hold reserves on the high end of actuarial estimates, which cushions against adverse development but may reduce reported profits in the short term. In contrast, more aggressive strategies may set reserves closer to the “best estimate” or even on the lower end, boosting earnings and competitiveness but increasing the risk of reserve shortfalls.
Understanding reserve adequacy, as well as best practices, is therefore critical to ensure capital efficiency. Without a clear grasp of whether reserves are sufficient, a carrier risks both financial distress and reputational damage.
According to the 2024 annual statements of the top 20 insurers by reserve-to-paid-loss ratio – which compares unpaid reserves with paid claims to evaluate reserve sufficiency – some 45% took a conservative approach to reserving during the 2019-2024 development period. In contrast, another 30% took an aggressive approach, and the remaining 25% achieved actuarial precision.
These results illustrate the continuing decline of conservative reserving practices across each successive development period, down significantly from 65% in 2015-2020. Instead, more carriers appear to be pursuing aggressive reserving strategies, or at least actuarial precision.
The waning popularity of conservative reserving shows a clear industry shift that should catch the eye of any carrier. It signals a shift in best practices. A carrier that is still too conservative or too aggressive may realize it’s becoming an outlier, which could affect competitiveness, pricing, or regulatory perception.
For example, carriers that pursue overly conservative reserving practices risk tying up capital, potentially reducing underwriting capacity and profitability. Insurers finding themselves in this position may be able to release some of that tied-up capital by improving analytical abilities and gradually moving towards actuarial precision.
Equally, carriers with overly aggressive reserving practices may appear more profitable in the short run, but risk greater volatility if reserves develop unfavorably. These insurers should be careful to monitor reserve adequacy and consider aligning with best practices.
Carriers already achieving actuarial precision should be focused on maintaining their leading position through continued investment in analytics and governance. This can also be leveraged to improve their competitive and reputational standing.
One common theme across all carriers is to invest in, and capitalize on, the latest advancements in data analytics, predictive modeling, and machine learning. Insurers that do so are increasingly benefitting from vast amounts of real-time claims data which they can use to better estimate future liabilities and reduce the uncertainty that often led to conservative buffers in the past.
The ratio of paid claims to total losses incurred – which shows how much of the total estimated losses have been paid out – appears to be on a slight downward trajectory. From a 2020 accident year to a 2024 development year, 88.9% of the total claim had been paid out compared to a 2019-2023 development period, when the ratio stood at 89.6%. Looking even further back to 2017-2021, the ratio hit a peak of 90.2%.
A falling paid-to-incurred-loss ratio suggests carriers are increasingly holding on to liabilities for longer amounts of time before paying them out. This has a marked impact on cash flow planning, since delayed payments may improve short-term investment income, but they also increase the need for liquidity further down the line.
Carriers should use this downward trend to benchmark their own payout patterns. Falling behind peers may raise questions over settlement speed and reserve adequacy relative to competitors.
Zooming in solely on incurred losses – the total expected cost of claims, including Defense and Cost Containment Expenses (DCCE) – they appear to have remained relatively steady across recent development periods, only dropping 3.3% from 2020 to 2024, and falling 0.5% from 2016-2020.
Meanwhile, paid losses – the cumulative claim payments made to date – have also decreased steadily across recent development periods. From 2020 to 2024, paid losses totaled $353.5 billion compared to $365.1 billion in the 2019-2023 period.
Flat incurred losses could indicate that insurers are releasing prior reserves, boosting current earnings. While this creates short-term profitability, it raises questions over sustainability. Carriers should use these results to benchmark whether their peers are relying on similar reserve releases, or if they stand apart.
It is therefore crucial for carriers to analyze the extent to which operational efficiencies, regulatory or legal changes, shifts in claimant behavior, or economic pressures are shaping their own settlement trends.
While these findings give carriers an evidence-based way to contextualize their own reserving strategies, their next steps will largely depend on what strategy they have employed to date. For example:
The IBA Property & Casualty Loss Development and Reserve Analysis Insights Dashboard is a powerful tool to help carriers make smarter, data-driven decisions in underwriting, product strategy, financial planning, claims management, and regulatory compliance.
Use the dashboard as your go-to resource for comprehensive reserve diagnostics and loss development analysis – bringing clarity, precision, and competitive edge to your reserving strategy.
