Claims payment pattern

Under Solvency II, in force since January 1, 2016, the best estimate is discounted on the risk-free curve EIOPA publishes every month, applied to the projected payment pattern. The pattern is the share of a cohort's final cost paid in each development year. Glass breakage or motor own damage pays out most of the cost within twelve months. Medical liability or construction is still paying twenty years after the accident year. Everything else follows from that. A line whose liability duration reaches seven years sees its reserves move by several percent for every hundred basis points of rates, while a line 90% settled in the first year barely moves. The pattern also sets how long the insurer carries inflation it never priced. And it shapes the reinsurance program: a long tail line calls for accident year covers rather than underwriting year covers. Without that cash schedule, a commitment of uncertain size could be neither discounted nor matched against assets.