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5 components of loss reserve
- Case reserve
- Prov for future dvpmt on known clms
- Reopen clm reserve
- Prov for clms IBNR
- Prov for clms in transit
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Define accounting and valuation date
- Accounting date: date that defines the group of clms for which liability may exist
- Valuation date: date through which transactions are included in the database used in the evaluation of the liability, regardless of when the analysis is performed
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Define development
Change between valuation dates in the observed values of certain fundamental quantities that may be used in the loss reserve process
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4 principles of loss reserving
- An actuarially sound loss reserve for a defined group of claims as of a given valuation date, is a provision based on reasonable assumptions and appropriate actuarial methods for the unpaid amount required to settle all claims, whether reported or not for which a liability exists on a particular accounting date
- An actuarially sound LAE reserve, for a defined group of claims on a given valuation date, is a provision based on reasonable assumptions and appropriate acuarial methods, for the unpaid amount needed to investigate, defend, and effect the settlement of all claims, whether reported or not for which a liability exists on a particular accounting date
- The uncertainty inherent in the loss reserving process implies that a range of estimates can be actuarially sound. The ultimate value of the amounts unpaid cannot be known until all attendant claims are settled
- The most appropriate loss reserve from a range of reasonable estimates will depend on the relative likelihood of the estimates within the range and the financial reporting context in which the reserves will be presented
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Name 3 loss reserve considerations
- Homogeneity
- Credibility
- Emergence/Settlmt/Dvpmt patterns
- Operational changes
- Changes in contract
- External influences
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