Reply To: Reserve Pattern
abhinandan7
[font=Calibri,sans-serif]Reserving pattern – I am giving a very naïve view being not an expert. It’ll be better if someone involved in reserving, answers this.
[font=Calibri,sans-serif]As we know reserving means keeping fund aside to meet the future liabilities, so we need to concentrate on exactly what our liabilities are and could be in future. Thus it more importantly depends on factors affecting our liabilities other than time.
[font=Calibri,sans-serif]At the commencement of any policy our liabilities are much bigger than the premiums to meet them. There are regulatory requirements to keep higher reserves and solvency capital initially. After that some of the reserves are released according to the behaviour of the policy.
[font=Calibri,sans-serif]As time passes, different policy types, with different financial structure, behaves differently. So it may be difficult to draw a single reserving pattern against time. For instances –
[font=Calibri,sans-serif]For term assurance, initially life is in good health requiring less reserves but as the life ages mortality effect is greater and hence may be greater reserve is required. For decreasing term assurance reserving against time might be a grey area.
[font=Calibri,sans-serif]For the endowment, even greater reserve might be required in light of maturity payments.
[font=Calibri,sans-serif]For annuities, may be less reserving is required as life ages (if no death benefit).
[font=Calibri,sans-serif]For general insurance, there are different types of reserves that are calculated (about six – like incurred but not reported, reported but not settled etc.). Again it depends on other factors than time. (You are very much aware of this by studying runoff triangle in CT6).
[font=Calibri,sans-serif]Finally, in my opinion, Reserving is affected by preponderance of other factors affecting liabilities than merely time. Of course we could draw the pattern we if know what reserving is required over time but that also is uncertain as factors might change.
[font=Calibri,sans-serif]Thank you for reading
Swargesh kant Tripathi