Getting the numbers right: investors and regulators now can estimate the impact of future reserve variability on insurers' earnings.(Property/Casualty: Reserves)

Best's Review, October, 2007 by Bryan, Charles A.; Khury, C.K. Stan

Loss reserves, generally the largest liability on insurers' balance sheets, are the estimated cost of settling unpaid claim liabilities. Under generally accepted accounting principles and statutory accounting principles, changes in reserve estimates are recognized in the year they occur, not the year policies were issued. Adjustments can turn a profitable year into a loss or even destroy an insurer's entire capital base.

An objective process exists that can estimate the variability inherent in loss reserves. This process can identify a benchmark for what company history indicates the reserve should be. It also identifies where the carried reserves stand in relation to all possible estimates that can be calculated from historical data using the loss development...

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