Fitch: Reserve Deficiency Remains for U.S. P&C Insurers, Albeit Lower in 2003.

CHICAGO -- The U.S. property/casualty insurance industry has an estimated reserve deficiency of between $43.5 and $61.5 billion at year-end 2003, equaling between 12% and 17% of reported surplus, according to Fitch Ratings. A new report shows that this estimate is down from Fitch's reserve deficiency range of $46 billion and $77 billion at year-end 2002. Chronic reserve deficiencies lead to questions on quality of past earnings and concerns of whether reported capital is overstated.

Fitch's estimated reserve deficiency is concentrated in three key areas:

-- Longer tail casualty lines for accident years 1997-2002;

-- Asbestos exposures from prior to the early 1970s; and,

-- Other latent exposures, including environmental liabilities.

The inadequate reserves in casualty lines such as workers compensation, general liability and medical malpractice reflect the poor market-wide pricing and underwriting practices of the soft market that carried into 2001. Reserving shortfalls also reflect the inherent risks of long-tail business, and the challenges in estimating losses in a period of shifting loss cost trends.

Fitch believes that the reduction in the industry's loss reserve deficiency estimate is a function of significant adverse reserve development from prior underwriting periods reported by industry participants in recent years, as well as indications that reserves for the most recent accident year have been reported in a more conservative fashion.

The new report 'Property/Casualty Insurance Reserves at Year-end 2003: Deficiencies Remain, But Are Receding' is available on the Fitch Ratings web site at www.fitchratings.com' in the 'Insurance' sector page under 'Special Reports'.