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
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
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)