2 - Reserving overview Flashcards

1
Q

Uses of reserving exercise

A
  • To set the provisions to be booked onto the balance sheet of the company
  • Assist the management in setting business plan
  • Valuing the business for sale (M&A)
  • Identify areas of the business that underperform or are underpriced
  • Identify trends in claims handling processes
  • Identify key areas of uncertainty within the portfolio of business written
  • Starting point to determine capital requirements of the company
  • Parameterise the reserve risk distribution for the capital model
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2
Q

Actual vs expected considerations:

A
  • Analyse paid claims vs expected
  • Average new claim size
  • Development of existing claims

Quantify the changes in ultimate claims due to:

  • Experience being different to expected
  • Changes to actuarial assumption
  • Changes in methodology
  • Changes to the historical data
  • Foreign exchange movements

–> If reserves are set on a quarterly basis, its good practice to consider the trends of emerging experience over longer periods e.g. yearly

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3
Q

Claim cohorts

A
  • Accident year
  • Underwriting year
  • Reporting year
  • -> in practice a quarter or a month can be used e.g. seasonal trends motor insurance
  • -> KEY: Need to use consistent bases for both claims and exposure to risk (eg. premium)
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