Chapter 8 (Claims Reserving)

The Importance of Accurate Reserving

An Insurance Company needs to accurately reserve for claims to ensure that they have appropriate provisions to meet the obligation of paying claims

The uncertainty over setting an appropriate reserve is influenced by the following;

• Legislative changes having a retrospective impact 
• Future claims patterns differing from historical experience
• Stress and disease claims emerging from many years ago
• Latent claims re asbestos and pollution etc
• Outcome of litigation on existing claims
• Failure to recover reinsurance

Incurred But Not Reported (IBNR)

• This calculation is based on the extrapolation of the pattern of claims reported in prior years and up to the balance sheet date
• IBNR ensures that all claims are accounted for in the correct accounting year whether they are reported or not
• IBNR is used as the number of claims when calculating the profitability

Reserving Methods

• Reserving is done by categorising claims and by…