Question

Q3. Explain how three of the following elements can affect estimate of loss reserve.

 The claims-handling process

 Policy and exposure forms

 Inflation

 Legal trends

 Environmental factors

 Mix of claimants

 Timeliness of claim reporting by claimants

Answer 1

loss reserve is an estimate of an insurer,s liability from future claims. Typically comprised of liquid assets, loss reserves allow an insurer to cover claims made against policies that it underwrites.

Insurance companies may use loss reserve for income smoothing. The claims process can be complex , determining whether an insurer is using loss reserves to smooth income requires examining changes to the insurer's loss reserve errors, relative to past investment income.