Chapter 13 - Reserving Bases

Question 1

Reserving Basis

Answer 1

The methodology and assumptions chosen in a reserving exercise

Question 2

Reasons for calculating reserves

Answer 2

TIC TIC EVILS

Transfer a book of business
Internal management accounts - determining the liabilities for these
Commutation negotiation

Tax liability assessment for insurer
Independent opinion on reasonableness of reserves booked by insurer
Case estimates - testing their adequacy

Estimate claims costs incurred in recent periods as an intermediate step in the rating process
Value the insurer for purchase or sale
Information to management on how business areas are performing
Liability determination to be shown in insurer’s published accounts
Supervision of solvency - determine liabilities to be shown in these separate accounts

Question 3

Considerations when setting the reserving basis for published accounts

Answer 3

1) Are the accounts to be prepared on a going concern basis
2) Are the accounts required to show a true and fair view
3) Are reserves required to be best estimate or some other basis
4) Are the reserves to be discounted and must explicit risk margins be added

Question 4

Commutation