Towards A Holistic Approach for Managing Reserve Risk

MuSigma Webinar Series, March 11th, 2021

Speakers: Kevin Madigan, Gross Consulting


“Reserve risk” is a complicated concept, meaning different things to different stakeholders. Corporate actuarial and finance departments focus on the variability around the estimated mean of the liabilities and the likelihood that claims emergence will be significantly different from the selected accounting entries – and its impact on surplus. Pricing actuaries and underwriters focus on the risk that the expected underwriting experience may be misestimated due to misestimation and misunderstanding of similar recent underwriting experience. Capital modelers focus on the tail of the liability distributions to identify capital charges and assess capital adequacy. Claims departments focus on legal or operational risks associated with claims handling procedures.

So, some clarity is called for when actuaries use the phrase “reserve risk”. One interesting observation that arises from the above distinction is that “managing reserve risk” is also in the eye of the beholder. In this webinar Kevin will discuss how a clear understanding of an insurer’s claims, underwriting, and actuarial capabilities coupled with a clearly articulated and practical risk appetite framework can help insurers reduce the likelihood of unexpected reserve development, and help them arrive at an underwriting strategy that is more likely to produce a portfolio whose risk characteristics are aligned with corporate goals.