1. 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
  2. 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
  3. Carried Loss Reserve
    ·reserve shown in a published statement
  4. Indicated loss reserve
    • Result of the application of a particular loss
    • reserving evaluation procedure
  5. Reserve for known claims
    • represents the amount, estimated as of the
    • valuation date, that will be required for future payments on claims that
    • already have been reported to the insurer
  6. Case Reserve
    • Sum of the values assigned to specific known
    • claims
  7. Define development
    Change between valuation dates in the observed values of certain fundamental quantities that may be used in the loss reserve process
  8. Define Reopen Claims Reserve
    • provision for future payment on claims closed as
    • of the accounting date that may be reopened due to circumstances not foreseen
    • at closing time
  9. 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
  10. Name 3 loss reserve considerations
    • Homogeneity
    • Credibility
    • Emergence/Settlmt/Dvpmt patterns
    • Operational changes
    • Changes in contract
    • External influences
    Delay between occurence and recording of claims
  12. CONSIDERATIONS: Settlement Patterns
    Time that it normally takes for reported claims to be settled
  13. CONSIDERATIONS: Development Patterns
    Changes in claims practices may afftect consistency
  14. CONSIDERATIONS: Operational Changes
    New computer systems, accounting changes, change in claim handling that affects reserving
  15. CONSIDERATIONS: Changes in Contracts
    Limits, deductibles, or coverate attachment points
  16. CONSIDERATIONS: External Influences
    • Judicial environment
    • Regulatory/Legislative changes
    • Inflation
    • Residual Market
  17. CONSIDERATIONS: Provision for uncertainty
    • May include provision for time value of money
    • May need explicit provision for uncertainty when indicated ultimate loss subject to high variability
    • Provision for uncertainty of undiscounted amount
  18. CONSIDERATIONS: Reasonableness
    • Incurred losses implied by reserves should be measured against relevant indicators (premiums, exposures) and expressed wherever possible in terms of freq, sev, LRs
    • Should explain big differences
  19. CONSIDERATIONS: Loss Reserving Methods
    • Selection of approriate method is actuary's responsibility
    • Usually examine indications of more than 1 method when estimating reserve for specific grp of clms
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