Chapter 7

Question 1

What influences the appropriate level of claims reserves?

Answer 1

• Legislative change in the future having a retrospective impact on existing claims
• Future claims payment patterns differing from historical experience
• Claims, such as stress and disease claims, taking a while to manifest
• Cases of latent exposures such as asbestos
• The outcome of litigation on existing claims
• Failure to recover reinsurance
• Unanticipated changes in claims inflation

Question 2

What is meant by ‘Ogden Rate’

Answer 2

unexpected changes to the interest rates (Ogden rate) applied by courts on personal injury claims. Personal injury claims settled by the courts use Ogden tables to calculate the amount that
should be paid as a lump sum for future loss of earnings and care costs.

Question 3

What is meant by ‘accruals concept’?

Answer 3

transactions are recognised
when they occur, and this is fundamental to accounting

Question 4

What is meant by ‘incurred but not reported’?

Answer 4

Incurred but not reported (IBNR) is a type of reserve account used in the insurance industry as the provision for claims and/or events that have transpired, but have not yet been reported to an insurance company.

Question 5

How is IBNR calculated?

Answer 5

Number of previous unreported claims x average cost of claims