There are different types of claim reserves shown in the liabilities of the General Insurance company. Some of the reserves are required to be stated directly like Unpaid reserves(due but not paid) while some are projected using Run off triangles using different methods.
Types of claim reserves in GI
There are certain types of reserves on the liabilities side also called as Technical reserves (or insurance reserves) might be split into:
- Incurred But Not Reported – IBNR &
- Incurred but not enough Reported – IBNER
- Outstanding Reported Claims Reserves – OS Reserves
- Re-opened claims Reserves
- Claims Handling Expenses Reserves
- Catastrophe Reserves – Cat Reserves
GI claim reserves reason
Claims reserves occur due to the delays in Claim reporting, Claim settlement, or premature closure of claims files.
Claims reserves are generally larger for long-tail classes of business.
Claims reserves are estimates. Therefore any work which is based on claims reserves should recognize the uncertainty underlying the estimates. This uncertainty is generally greater for long-tail classes.
When a claim event occurs there will be some time before it is reported or notified to the insurer – this is known as a claim delay. The insurer will incur numerous claims in a calendar year, and each of those claims will have a claim delay.
To clear one thing, a Chartered Accountant CANNOT calculate Reserves. They can do finance, underwriters know about risk but Actuarial is something different and on that note, here you go.
The below claim reserves example will give you an idea on what are the different terms used for these reserves. We will cover them in detail in upcoming sections.
Questions Related to Claim Reserves
Incurred But Not Reported – IBNR
Incurred but not enough Reported – IBNER
Outstanding Reported Claims Reserves – OS Reserves
Catastrophe Reserves – Cat Reserves
Claims reserves are estimates of claims that have occurred on or before the financial statement report date but which have yet to be paid.
This a current liability that has to be reported regularly on the insurer’s financial statements even though the actual final settlement cost of the claims may be unknown to the entity on that date.