The adequacy of claims reserves is a critical issue for the property and casualty insurance industry, as it affects the profitability, solvency, and reputation of insurers. Reserve estimates are always subject to uncertainty. The indicated measurement of these estimates may change over time due to various factors, such as claim frequency and severity trends, legal environments, social attitudes, and economic conditions. Exogenous factors, such as social inflation, are uncontrollable and external, tending to elevate the inherent uncertainty of reserve estimates.
Social inflation refers to the phenomenon of rising litigation costs, higher jury awards, and broader contract interpretations that increase insurers' liabilities beyond their original expectations. Social inflation can have a significant impact on reserve adequacy, especially in lines of business such as liability. Lloyd’s has identified social inflation as a key area of consideration for Lloyd’s chief actuaries and signing actuaries.
This paper updates a 2025 report, making observations regarding an additional calendar year (2024) of Lloyd’s experience and new research on social inflation. Milliman published the initial paper on reserve development in Lloyd’s syndicate data, heavily influenced by social inflation, a key driver of adverse development (AD). It highlighted AD in the aggregate loss ratio performance for years of account (YoAs) 2015 through 2019, looking at that data at year-end from 2018 to 2023. The paper also discussed how individual syndicates might use the aggregate Lloyd’s information to assess their own performance.
Our 2026 report covers some new ground, adding on 2024 to the analysis. Key discussion points include the following:
- Walking a tightrope: Balancing the two contradictory pressures of decreasing loss ratios (from underwriters, executives, and capital providers) and increasing loss ratios (based on further observed AD).
- The 2015 through 2019 YoAs: How have they progressed during 2024 for general liability occurrence and claims.
- Social inflation: An update on the drivers of AD.
- Takeaways: Tracking market-level AD can unlock valuable insight; social inflation will continue to remain a significant factor of claims costs and performance of portfolios with US liability exposures.