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?