Chapter 23 - Reserves

Question 1

Technical reserves may be calculated to: (7)

Answer 1

1. Determine liabilities for published accounts
2. Determine liabilities for solvency accounts
3. Determine liabilities for internal management accounts
4. Assist in premium rating
5. Value insurer for merger or acquisition
6. Influence investment strategy
7. Assist with the assessment if reinsurance arrangements

Question 2

4 types of long term insurance reserves:

Answer 2

1. Reserves for in force policies
2. Claims reserves
3. Option reserves
4. For group contracts, UPR and URR

Question 3

7 types of short term insurance reserves:

Answer 3

1. Unearned premium reserve (UPR)
2. Unexpired risk reserve (URR)
3. Incurred but not reported claims reserve
4. Claims in transit reserve
5. Outstanding claims reserve
6. Incurred but not enough reported claims reserve
7. Equalisation or catastrophe reserve
8. Investment mismatching reserve

Question 4

What does the unexpired premium reserve represent?

Answer 4

The balance of premiums received in respect of periods of insurance not yet expired

Question 5

What does unexpired risk reserve represent?

Answer 5

Represents any excess over UPR of the cos t of claims and expenses expected to arise from the remaining (unexpired) period of cover

Where it is felt that the premium basisis not adequate

Question 6

2 primary ways to calculate reserves for HC products:

Answer 6

Case estimates
Statistical estimates

Question 7

Factors that will be taken into account when setting case estimate reserves for indemnity prodcts:

Answer 7

1. Procedure type (indicate cost of procedure, in-patient duration for accommodation costs)
2. Hospital to be used
3. Name of surgeon, consultant
4. Policy coverage (fullnindemnity, excess limits)
5. Age, gender and pastclaims history of claimant may have some bearing
6. Current levels of medical inflation

Question 8

Advantages of using case esimates to determine reserves: (3)

Answer 8

1. It is the only aaproach that can make use of all the known data on outstanding claims
2. There may be qualitative factors that will influence the amount of a claim. An experienced and skilled assessor will be able to weigh up all these factors when estimating the amount of the claim
3. Case by case methods may still be appicable when statistical methods are not reliable

Question 9

Disadvantages in using the case by case estimates method to calculate reserves: (7)

Answer 9

1. Estimate relies on skill and judgement of individuals. Different individuals may produce different results
2. Aasessors may be naturally conservative or optimistic in their assessment
3. If estimate is used for negotiation with claimants, there may be tendency for estimate to be biased to lower end
4. Extremely difficult to check
5. There may be a lot of outstansing claims. Will take many person-hours to check each claim individually. Making it very expensive
6. Assessors may not use consistent rates of inflation. Will also be hard to produce estimates on a range of possible bases
7. In some circumstances, estimates of the outstanding claims reserves will need to be made by outsiders who do not have access to all the data on individual claims. In these circumstances individual case estimates are not possible