Claims Reserving Flashcards
(20 cards)
Why is accurate reserving important for insurance companies?
To ensure they have enough money set aside to pay future claims.
What factors make claims reserving uncertain?
Changes in laws, payment patterns, old risks, hidden exposures (like asbestos), court outcomes, reinsurance issues, inflation, and interest rates.
What does IBNR stand for?
Incurred But Not Reported.
What is IBNER?
Incurred But Not Enough Reported, meaning claims estimates might be too low.
Why do insurance companies categorize claims by incident year?
To match premiums with claims from the same time period.
What statistics are collected for claims reserving?
Number of claims, nil claims, paid claims, and outstanding estimates.
Name four methods for estimating the total cost of claims.
Projection of paid claims, projection of incurred claims, loss ratio method, Bornhuetter-Ferguson method.
Who decides how much money to set aside for claims?
The board of the insurance company.
How is the accuracy of claims reserves checked?
By looking at the claims run-off, which compares the estimated reserves to actual claims paid.
Why is reserving important?
To ensure enough funds to pay future claims.
What is the Bornhuetter-Ferguson method?
Combines expected loss ratio and reported claims.
What is a claims run-off?
Refers to claims made after the policy has ended but for events during the policy period
Incident Year
Also called Accident Year
Premiums earned up until last day of accounting period and claims assessment needs to match to get accurate profitability
Projection of paid claims - claims estimation
Extrapolate paid claims
Can choose to account for future inflation or not (historic inflation built in)
Projection of incurred claims - claims estimation
More accurate than projection of paid claims
Extrapolate incurred claims
Loss ratio method - claims estimation
Rarely used alone
Used for most recent incident years where the value of paid and / or incurred claims is low in relation to total value of claims expected
Exposure-based method for claims estimation
Used for very long-tail liabilities with high degrees of uncertainty
e.g. asbestos, pollution, health hazards
Why are different methods used when estimating claims
To ensure a range of different scenarios are considered
What are claims development tables?
Convey info on management’s prior estimates of outstanding claims
IFRS 17 requirement
Discounted claims
Amount set aside is reduced by expected investment income
