Reasons for estimating reserves and different reserving bases

Question 1

There are a number of reasons for assessing a general insurer’s liabilities, including (9)

Answer 1

o To estimate the insurer’s reserves for the published accounts or supervisory solvency or internal management purposes
o To check reasonableness of reserves
o To provide information to management on business performance by area
o To estimate claims costs for premium rating
o To value an insurer for sale or purchase
o To negotiate a commutation for the buyer or seller
o To transfer a book of business
o To ascertain tax liabilities
o To test the adequacy of case estimates

Question 2

• Reserving methodologies vary according to (7)

Answer 2

o Class of business, in particular the timing of the run-off of the liabilities
o The types of claim that have been incurred or may be expected to occur
o The extent and quality of the available data
o The age of the business
o The key factors that determine development of claims
o Historical trends and patterns
o The purpose of the reserving exercise

Question 3

• When communicating the uncertainty of the results, an actuary should (7)

Answer 3

o Ensure stakeholders understand the level of uncertainty
o Be consistent with vocabulary used by other professionals, and explain terms
o Emphasise the bigger issues
o Explain what has been allowed for in the best estimate, and what has not
o Emphasise the unusual issues
o Comment on the uncertainty in the context of the scope and purpose
o Avoid misunderstandings