6 - Selected Additional Reserving Topics

Summary

Introduction

This chapter contains a range of additional reserving topics that are not covered elsewhere in the other chapters, including:

A section covering the estimation of outwards reinsurance.

A section describing the use of roll-forward and Actual vs Expected procedures.

A number of sections covering the approaches used to estimate reserves for certain specific types or category of reserve, specifically Unallocated Loss Adjustment Expenses, reinsurance bad debt and latent claims.

A section that covers discounting of reserves for the time value of money.

A section that summarises reserving under Solvency II.

A final section covering a number of miscellaneous topics (e.g. using external data sources and deriving Unearned Premium reserves).

Outwards Reinsurance

This section considers the approaches that can be used for estimation of outwards reinsurance in a reserving exercise, where the purpose of the exercise is assumed to be the derivation of a point estimate of the reserves, rather than a distribution of future claims. Outwards reinsurance may also be referred to as “ceded” reinsurance in some contexts.

Allowing for outwards reinsurance across a full distribution is considered in the stochastic methods chapter. In particular, some of the approaches that can be used are discussed in the context of the bootstrap method in the outwards reinsurance subsection of Section 4.4.5, and these are also applicable to a number of other stochastic methods. In some cases, even where the principal aim of the exercise is to establish the allowance for outwards reinsurance in respect of a single point estimate, stochastic methods can be helpful, because they can be used to make allowance across the full range of possible future gross claims outgo. Depending on the nature of the outwards reinsurance, this may produce a more accurate estimate of the outwards reinsurance reserve than, for example, netting down a single point estimate of the reserve.

The reserving of inwards reinsurance business (i.e. reinsurance business written by a company) is a different topic. However, the methods that can be used are generally similar to those for insurance business, with some specific approaches being used, where appropriate. Some of the specific reserving contexts covered in Chapter 7 make reference to such approaches.