Reserving, reserve uncertainty and statements of actuarial opinion

Actuarial loss reserving techniques and reporting frameworks have evolved slowly in the face of a challenging external environment and rapid changes in the global insurance industry. The uncertain economic environment, unexpected new sources of claims or major insured loss events (such as the Christchurch earthquakes, and the Thai floods in 2011), emerging new insurance needs (for cyber-crime, nanotechnology, etc.) with limited loss data, and appropriate allowances for changes to insurers' supply chain management and improved claims handling processes, underpinned by technology solutions, are challenging reserving actuaries and reserving committees.

The prolonged soft market also has led to many insurers releasing margins in prior year loss reserves to support earnings. Considering the inherent uncertainty around loss reserving levels, concerns around future inflationary and deflationary pressures, and the ever-persistent potential for the courts to introduce retrospective liability, how much more margin can they release? Furthermore, against this backdrop, how does management gain comfort that their existing actuarial reserving processes and tools are effective and booked loss reserves continue to be adequate?

Potential issues

  • Concern about the integrity of financial statements and the deterioration of loss reserves on lines of business.
  • Desire to improve communications on loss reserve adequacy with external stakeholders, such as regulators, rating agencies, investors and the analyst community.
  • Need for access to sufficient or appropriate data to reserve appropriately for new or immature lines of business.
  • Existing loss reserving methodologies cannot allow explicitly for key claims management initiatives or underlying trends; accordingly, actuarial loss reserve recommendations give only limited credit for management actions and are slow to react to adverse or favorable drivers of the emerging claims experience.
  • Growing pressure to disclose information on reserve variability from various stakeholders, including regulators, rating agencies, investors, and management.
  • Problems addressing unusual or complex reserving issues across personal or commercial lines of business.
  • Loss reserving management information suite is not providing management, the reserving committee, or the board with the required level of clarity or insight on reserving issues and trends.
  • Desire to improve internal reserving and reporting processes to facilitate faster reporting and improved compliance results.

How we can help

  • Provision of external benchmarking support on new or immature lines of business.
  • Our proprietary tools can help you understand the potential variability in your reserve estimates, and to communicate your findings and insights in a more impactful manner.
  • Our extensive global database contains information that can enable you to form strategic points of view on emerging industry trends.
  • Our extensive experience serving hundreds of insurance companies has enabled us to develop deep insights into leading practices in efficient reserving processes and strong control environments.

Our services

  • Statements of Actuarial Opinion, which offer insight into your specific reserving issues, key areas of reserving uncertainty, and comparisons to your peers.
  • Support for your dealings with internal and external stakeholders; for example, we can help you create disclosures that clarify key reserving issues and recent movements in ultimate claims cost estimates.
  • Provision of benchmarking support on lines such as workers compensation, D&O, excess casualty, mortgage/ financial guaranty, and medical professional liability.
  • Design and implementation of loss reserving techniques that provide greater flexibility and a wider range of explicit inputs, in comparison to traditional chain ladder/B-F and frequency-severity techniques.
  • Helping create a competitive advantage through improved and new uses of data for reserving and pricing; this provides actionable insights, illustrates them in meaningful ways, and informs strategic business decisions via enhanced loss reserving management information and corporate dashboards.
  • Reserving studies on specialty coverages, such as construction defect, surety, umbrella and aviation, or on asbestos and environmental exposures.
  • Design and implementation of a loss reserving uncertainty framework that addresses future systemic risk, rather than one which relies on overly simplistic and inadequate bootstrapping, Mack, or similar approaches.
  • Reserving studies on older workers compensation claims; we conduct these, using our workers compensation pension model which considers claims on a case-by-case basis.
  • Assessment and subsequent remediation of existing loss reserving processes, governance and controls; we use our Loss Reserving Gold Standard framework when performing this work.