Chapter 7 - F Flashcards
What does reserving mean in the context of insurance?
Making sure that there are sufficient funds available and allocated for the payment of any claims that arise at any time in the future.
How do insurers reserve for claims?
By reviewing claims data, using expert input, and the claims adjuster’s knowledge and experience.
What is the difference between individual and blanket reserving?
Individual reserving reviews each claim on a case-by-case basis, while blanket reserving uses statistical data to create a reserve across an entire book of business.
What costs must be included in the reserve amount?
The cost of the claim indemnity and the costs of any experts involved in the claim.
What additional factors should claims adjusters consider when setting reserves?
The jurisdiction of legal proceedings and the potential award amounts in those courts.
True or False: Personal injury awards in the UK have traditionally been higher than in the US.
False
What change did the UK Government make regarding personal injury compensation in 2019?
Changed the discount rate to -0.25% to reflect the drop in interest rates.
What is the impact of the new discount rate on reserves for personal injury claims?
Insurers must reserve more than previously; for a claim worth £1,000,000, they now reserve £1,002,500.
Why is it not advisable to reserve the full policy limits?
Higher reserves increase liabilities, requiring more capital to maintain solvency.
What is under-reserving?
Holding insufficient reserves, which can mislead the insurer about its profitability.
What distinguishes short-tail from long-tail business?
Short-tail claims are reported and settled quickly, while long-tail claims take longer to report and settle.
What is incurred but not reported (IBNR)?
Losses which have occurred but have not yet been reported to the insurer.
What is incurred but not enough reported (IBNER)?
Claims that are known but for which the currently posted reserve may not be adequate.
How do actuaries estimate the development of current years’ claims?
By reviewing previous years’ claims data and how they developed.
What are situs funds or trust funds?
Physical funds or reserves required to be maintained within a country’s borders for risks written in that country.
Fill in the blank: The higher the reserves, the more _______ the insurer must have available to balance the solvency equation.
capital
