英文文献原文
Setting Realistic Reserves -- Projecting the Company"s Future Obligations
By Robert J. Prahl, CPCU
Director of Education
American Association of Insurance Services (AAIS), Wheaton, IL
According to a recent National Underwriter article, property casualty insurers collectively made reserve adjustments totaling approximately $20 billion in 2002. The companies that announced these reserve increases were among the most conservatively managed operations in the business, which suggests that there may be more companies yet to "take a hit." There is concern that these reserve deficiencies will further weaken insurer balance sheets and limit future growth, and that some companies may not be able to pay, while others will dispute claims.
What is a reserve and why can they have such a dramatic effect on the underlying financial strength of the property-casualty industry?
A reserve, stated simply, is a sum of money that is set aside from surplus into the liability account to meet some future obligation. Since reserves represent future obligations of an insurance company, they are classified as liabilities on the company"s balance sheet. Reserves are obviously important since they can be a measure of a company"s financial health. Improper reserves, either inadequate or excessive, can present a false picture of a company"s financial condition and lead to serious problems.
The two principal types of reserves established by insurance companies are claim reserves and unearned premium reserves. Unearned premium reserves represent that portion of the premium that has not been earned or used up at any particular time. For example, the earned premium on a one-year policy generating $1,000 in premium that is canceled after three months is $250. (One-fourth of $1,000 has been earned.) The unearned portion of the premium at this point is $750. Since the company has not yet earned the $750, it must be set aside as a reserve.
Although unearned premium reserves are an important factor in determining a company"s financial position and future production capacity, the focus of this discussion is on claim reserves. To understand the significance of claim reserves, it is necessary that three basic questions be answered. They are:
1. What is a claim reserve?
2. Why are claim reserves necessary?
3. How are claim reserves established?
What Is a Claim Reserve?
A claim reserve is an estimate of what a claim will cost. The reserve represents money that is set aside for the eventual payment of a claim. From the company"s standpoint, a claim is incurred when it happens, regardless of when in the future it is paid.
Some companies include estimated claim expenses in the reserve amount while others establish a separate reserve for the claim and a separate reserve for anticipated expenses, such as independent adjuster fees, legal fees, charges for police reports, hospital records, appraisals, and so on.
Still others "bulk" reserves for expense amounts.
Why Are Claim Reserves Necessary?
Insurance is characterized as an "intangible" product because the insured does not receive anything material or tangible for his or her premium dollar until a claim is paid. The payment of a claim is what consummates the insurance contract. It is especially important, therefore, that when claims become due, money is available to meet those obligations. Insurance companies are regulated for solvency so that they will be able to pay claims in the future.
With respect to liability claims, and particularly bodily injury liability claims, years may pass before a claim is paid. This might be due to the fact that time is needed for the injury to heal or because the claim is in litigation. Because of the extended time involved before such claims are finally settled and closed, bodily injury liability claims are sometimes referred to as "long tail" claims.
Since an insurer has an obligation to pay covered claims, it is understandably important that funds be available for this purpose when claims are ultimately settled.
Claim reserves are necessary to properly recognize, at any given time, a company"s future obligations.
The importance of proper reserving is further demonstrated by the fact that claim reserves are required by insurance regulatory law. In addition, the reserving practices of companies are periodically audited by state insurance departments in an effort to recognize potential problems and to take corrective action to avoid company insolvencies.
The importance of reserving was expressed by Conning Research & Consulting, Inc., in a January 2003 report titled "Property-Casualty Reserve Adequacy; Digging Deeper."
". . . . The ongoing recession, the rising cost of medical care, the emergence of mold and re-emergence of asbestos and other environmental claims, and the lingering impact of September 11, have all contributed to the pressure mounting on P-C insurers" reserves. Despite the fact that loss reserves are the largest liability on insurers" balance sheets, most stakeholders (employees, regulators, investors and agents/brokers) do not critically examine their adequacy. Individual company results, particularly for a single line, are likely to differ, often dramatically, from those of the industry. The survival of some insurers and reinsurers may well depend on their ability to accurately reserve and appropriately price."
The report is available by calling toll free (888) 707-1177, or by accessing the company"s Web site at
www.conningresearch.com.Improper reserving, both under-reserving and over-reserving, adversely affect a company"s financial position. Inadequate reserves understate a company"s liabilities and overstate its surplus. The following example, although admittedly an oversimplification, should help demonstrate the effect of under reserving.
A basic accounting principle is that assets minus liabilities equal surplus.
In this hypothetical example, assume that assets are $1,000 and liabilities are $750. For purposes of illustration, assume further that liabilities are comprised totally of claim reserves.
Suppose, however, that this particular company has a serious under-reserving problem, and as claims are ultimately settled, they actually cost $950, instead of the $750 originally estimated. Under these circumstances, the balance sheet would appear as follows:
It is evident here that as claims are settled, the company must draw from its surplus in order to meet its claim settlement obligations. If such a situation continues unchecked, and surplus is depleted, the company faces insolvency.
In addition to the fact that inadequate reserving understates the company"s liabilities and overstates its surplus, it also may have a negative effect on rate making. Since reserves are an integral part of rate making, inadequate reserves can result in rates that are lower than they should be and this may hasten a company"s decline.
Over-reserving can create problems as well. Over-reserving understates a company"s financial strength and may create the false impression that rate increases are necessary or justified. In addition, since earnings are understated, the company pays less taxes. A company suspected of over-reserving invites audits by the tax authorities that could result in penalties being assessed against it.
In summary, claim reserves are necessary to properly recognize a company"s future obligations. Proper reserving is important in order to accurately reflect a company"s financial position. The importance of proper reserving is further demonstrated by the attention given to companies" loss reserving practices by the various state insurance departments.
How Are Claim Reserves Established?
Claim reserves are established essentially in two ways:
1. statistically or actuarially by monitoring past lost
experience and projecting future losses;
2. subjectively by the claim person"s judgment.
Types of Reserves
Average or Formula reserves - Average or formula reserves are set statistically by the actuarial or accounting department and are based on past loss experience and adjusted periodically.
Assets - Liabilities = Surplus
$1,000 - $750 = $250
Assets - Liabilities = Surplus
$1,000 - $750 = $250 (estimated)
$1,000 - $950 = $ 50 (actual)
This reserving method usually is applied to high-volume type claims such as auto collision, comprehensive, property damage, and medical payments where payments generally are minimal and claims settled fairly quickly. The extent to which average reserves are used varies by company and by line of insurance. Since these reserves are set, for the most part, by the accounting or statistical department, they are not of primary concern to claim people.
Incurred But Not Reported (IBNR) - Frequently, losses or accidents that have already happened are not reported for weeks, months, or even years after the incident. This is quite common after a catastrophe such as a hurricane or tornado, when early on the company does not know with any accuracy the number or amount of claims that will be generated as a result of the catastrophe. It knows losses have been incurred, but realizes that many of those losses will not be reported immediately. In such cases, it estimates the losses it believes to have been incurred but not yet reported. Despite the fact that these claims have not been reported, they are incurred from the company"s standpoint when they happen. Hence, the phrase "incurred but not reported" is used to describe this type of reserve.
With regard to liability claims, accident reports may be delayed for a variety of reasons. Aside from the normal time lag in reporting claims, the insured may be initially unaware that insurance coverage is available for the claim or the claimant may not immediately recognize that the policyholder may have been responsible for the accident. Products liability, medical malpractice, and latent disease claims (i.e., asbestos or leadrelated claims) where injuries may not be evident for years after the occurrence or exposure, have magnified reserving problems associated with properly estimating IBNR reserves.
Whatever the reason for the delayed report, it is reasonably safe to assume that a company always has outstanding claims that have not yet been reported. Estimates for IBNR reserves ordinarily are based on past experience, to the extent possible. They may be further modified by what actuaries believe are relatively certain projections regarding claim frequency and severity. With respect to catastrophe losses, the claim practitioner can estimate the areas (states, counties, etc.) and number of insureds who may have sustained damage to arrive at an IBNR reserve, which may change from month to month.
In any event, such reserves are established by actuaries and senior management and, like average reserves, do not require the attention of claim people.
Individual Case Reserves - Individual case reserves are reserves set subjectively by the claim person on an individual claim basis. After considering the many factors associated with the claim, the claim handler uses his or her judgment to set the case reserve. Case reserves are typically applied to claims that remain open for an extended period of time and are most commonly associated with bodily injury liability claims. Many companies modify case reserves statistically, based on past and projected loss experience.
There is no magic or proven formula for setting individual case reserves. They are established essentially by the judgment and experience of the claim practitioner. Proper and realistic case reserving is one of the primary responsibilities of the claim department. Who sets the reserve, whether it be the adjuster, supervisor, or manager, is determined by individual company claim policy. Regardless of who sets the reserve, however, the claim adjuster is in an ideal position to furnish the kind of information necessary to set accurate and realistic case reserves. This necessary information includes the adjuster"s opinion of legal liability, nature and extent of the injury or damage, medical bills, and so on.
Precisely when in the life of a claim a case reserve is established varies by company and by line of insurance .Some companies require that case reserves be established immediately after the initial investigation is completed or within 30 days from notice of claim. Other companies defer setting case reserves for as long as three or even six months, so that sufficient information can be obtained to set a relatively realistic reserve. Until that time, these claims usually carry an average reserve.
The more specific information the adjuster obtains about the loss or claim, the more accurate the reserve will be. With the necessary information, the person responsible for setting the reserve can make a fairly accurate assessment of the company"s exposure and decide upon a monetary figure that represents the ultimate cost of the claim.
In those cases in which little or no payment is contemplated, such as where the insured"s liability is doubtful and the case will be defended or settled on a compromise basis, the expense factor must be considered. An expense reserve is usually established to reflect the fact that considerable investigative and legal expenses will be incurred to defend the claim.
One of the problems with setting case reserves for a bodily injury claim is that it is difficult to estimate the ultimate cost of a claim with only limited information about the injury and no specific indication of how and to what extent the injured person will recover. In addition, important information about the claim or injury ma
晨官