|[August 30, 2013]
A.M. Best Special Report: Property/Casualty Loss Reserves: Do Reserving Cycles Really Exist?
OLDWICK, N.J. --(Business Wire)--
There is recent debate in the property/casualty industry as to whether
market cycles impact the recording of loss and loss-adjustment expense
(LAE) reserves to the extent that loss and LAE reserving itself also
follows cycles, according to a special report by the A.M. Best Co.
Adherents of the "loss-reserve cycle theory" argue that loss reserves
are strengthened during hard markets when prices and profits are high
and can support these increases, while the release of reserves during
soft markets supports earnings and equity. The counter view is that loss
and LAE reserving is an important element of underwriting and pricing
feedback, and therefore, reserving that varies according to mrket
conditions could mislead management about the profitability of the
business. On this basis, a reserving standard that varies according to
market conditions is both undesirable and contrary to established
actuarial professional standards, which prohibit the management of loss
reserves based on the profitability of business on a material level.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=216310.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS
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