Non-life insurance
Claims reserving
Claims reserving is a vital area of insurance company management, which is receiving close attention from shareholders, auditors, tax authorities and regulators.
For many companies, the claims reserve is a very substantial balance sheet item, which can be large in relation to shareholders’ funds. Actuaries are now well-established in the area of claims reserving for non–life insurance business. In many countries there is already a statutory requirement for actuarial certification of reserves. Even in jurisdictions where there is no such requirement, the substantial contribution actuaries can make to estimating future liabilities has been recognised across the market.
Failure to reserve accurately for outstanding and IBNR claims will adversely affect a company’s future financial development. Any current reserve inadequacy will give rise to losses in subsequent years, and lead to under-pricing of risks. Conversely, premium calculations based on a pessimistic evaluation of current liabilities will damage the company’s competitive position.
Watson Wyatt has extensive experience of advising on claims reserving for a very wide variety of companies across the world, as well as Lloyd’s syndicates writing different classes of business.
Data analysis and claims projection
The actuarial approach to claims reserving includes procedures to discover and analyse underlying patterns and trends in the data, which may then be projected forward to assess future liabilities.
While sophisticated statistical techniques may be used to undertake the projections, the most important part of the exercise is the collation and analysis of the past data. We place considerable importance on understanding the company’s business, and tailoring the projections to reflect the nature of this business.
Watson Wyatt can assist companies writing all classes of business by:
assessing the most practical approach to the analysis and projection of each account (studying the data available and discussing with underwriters the nature of the business written) reviewing current reserving techniques and recommending possible improvements to these techniques and the data available providing regular or one-off reports on the estimated value of outstanding claims and their development assisting management in preparing submissions to regulatory and tax authorities monitoring emerging experience and highlighting any significant trends modelling the variability and uncertainty surrounding future claims development using stochastic reserving techniques providing external opinions to regulators.
Variety of experience
In our view, each class of business and each problem area requires separate consideration because each has particular characteristics which need to be reflected in the projection process. We have practical knowledge and experience of a number of issues that are currently topical in various non–life insurance markets, including:
trends in bodily injury awards industrial disease claims subsidence claims asbestos and pollution claims a variety of specialist classes of business including mortgage indemnity, creditor and extended warranty business.
London Market/Lloyd's
The claims reserving of London Market business requires particular care in view of the long tail nature of much of this business. Longer-tailed classes of business often involve fewer claims, but with a much larger average claim amount. This introduces more volatility into the data and actuarial techniques are used to smooth the claim progressions. It is also particularly important to understand, and reflect in the reserving methodology, the nature of the covers provided.
For our many Lloyds and London Market clients we have:
projected a wide variety of marine, non-marine and aviation accounts analysed a large number of problem treaties and lineslips within the market investigated the potential for further losses arising from asbestos and environmental pollution claims.
Other non-life insurance provisions
We also have considerable experience of reviewing non–life insurance provisions other than claim reserves. This includes unearned premium reserves, additional unexpired risk reserves, future reinsurance bad debts and future unallocated claims-handling expenses.
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