Reserving Flashcards
What is an insurance liability?
An obligation for which the company is legally responsible
Conditions necessary for a liability
- A contractual event must have occurred (for unearned premiums, the policy has been sold; for loss reserves, the loss has happened)
- The obligation has not yet fully been discharged
Two most significant insurance liabilities
- Unearned Premium Reserves
- Loss and Loss Adjustment Expense Reserves
Reserves
Setting aside money to pay for the defense or indemnification of claims or lawsuits
Explain the Life Cycle of a Claim
- Establish an estimate initial case reserve
- Notify a reinsurer if needed
- Make a partial claim payment
- Expense payment made for independent/adjuster counsel
- Change in case outstanding estimate
- Make final claim payment
- Take down case outstanding (set to 0)
- Reopening of claim
Approaches for Estimating Case Outstanding
- Internal Claims Department
- Third Party Administrators
- Independent Adjusters
IBNR
Incurred but not reported (IBNER + IBNYR)
IBNER
Incurred but not enough reported
IBNYR
Incurred but not yet reported
Formula for Incurred loss
Paid Loss + Case Outstanding
Formula for Ultimate Loss
Incurred Loss + IBNR
Formula for Reserves (there are two)
IBNR + Case Outstanding and Ultimate - Paid
Cumulative Claims
Payments through a specific valuation date plus the case outstanding reserves as of that same point in time
Incremental Claims
The change in cumulative report claims over a given period of time
Defense & Cost Containment
Includes all defense litigation and medical cost containment expenses, whether provided internally or externally
Adjusting and Other
Includes all claim adjusting expenses
