Reserving

An A.M. Best study found that a third of all P&C insurance company failures in the U.S. over a 30-year period were attributable to inadequate reserves.

Insurers’ ability to accurately and practically calculate their loss reserve requirements has always been important. Getting it badly wrong can have dire consequences as the statistic above starkly illustrates.

Amendments to the treatment of reserves in both International Financial Reporting Standards (IFRS) and the European Solvency II Directive will bring new challenges over the coming years. Insurance companies’ balance sheets will look considerably different once these take effect.

The new regulations will entail some fairly significant changes to the way insurers go about their reserving. There will undoubtedly be a need for increased actuarial input, better risk governance, and broader understanding from management teams.

Many companies miss out on the opportunity to extract more value out of reserving by failing to align technical reserves with what the business does. With the enforced changes that lie ahead, now is a perfect time to remedy that.

The acquisition of EMB in 2011 has strengthened our offering in this area.