Estimating insurance reserves is an uncertain process, by its very nature there is no exact right or wrong answer as to what level of reserves are required at a company level or even for a single class of business. Not all classes of business are alike and it can often be the case that even for two classes of business with the same name the underlying exposures can be significantly different. EMB have extensive knowledge of analysing Non-Life insurance business to determine recommended reserves and the level of adequacy.
When making business decisions regarding reserves it is important to understand the basis on which they have been estimated and the intended use of the information. The level of reserves required will vary greatly upon the purpose for which they are to be utilised.
EMB have wide ranging experience of assisting our clients in analysing reserves for all classes of General Insurance business in a wide range of commercial functions including:
• Balance Sheet reserving
• Statutory requirements
• Mergers and Acquisitions
• Commutations
• Management Information
• Pricing
Even if the commercial function for which the reserves have been produced is known it is additionally important to consider the basis on which the reserve estimate has been produced, is it on a “Best Estimate” basis or perhaps at a 70th percentile level. EMB have extensive knowledge and experience in producing ranges of reserve estimates.
As a standard component of any reserving exercise it is important that good understanding of the classes of business and the exposures written is obtained. When analysing reserves at a class of business level it is vital that additional information is obtained for an account, for example:
• What are the top 10 exposures in each account?
• What is the average policy period?
• Are there binders in the account?
• Has there been large loss activity?
• Is there an aggregation of risk?
• How has the exposure profile changed between years of account?
• Have policy terms and conditions changed between years?
These are just some of the questions that help to create the level of understanding required to estimate reserves for a class of business.
There are many factors which will affect the adequacy of reserves. To discuss the above and further issues in greater detail please contact richard.tunbridge@emb.co.uk
Further information on Reserving Uncertainty
Further information on Mergers and Acquisitions
