Case reserve
The amount a handler books as a liability for an identified claim. It is the first building block of reserving and the first source of its drift.
In 1996, Lloyd's set up Equitas to take on roughly 14.7 billion pounds of pre-1993 liabilities, with asbestos at the top of the pile. The case reserves opened on those claims in the 1970s had been raised again and again, and none had seen the drift coming. A case reserve is the figure a claims handler books, on each open file, for what remains to be paid. It is the basic building block of non-life reserving. The actuary then adds what it cannot hold: IBNR, incurred but not yet reported, and the foreseeable shortfall in estimates already on the books. It rests on judgment made early, on an incomplete file, and its biases are well known: optimism on files the handler hopes to close, defensive caution on the ones that make the press. The worst is inertia: an open reserve is seldom raised until a new document forces it. Long tail lines therefore cannot be reserved file by file alone. Reserve review works on aggregated triangles rather than on the sum of the files.
The case reserves set in the 1970s on asbestos claims were revised upward repeatedly, and none had anticipated the scale of the drift. In 1996 Lloyd's had to create the Equitas vehicle to carry roughly 14.7 billion pounds of pre-1993 liabilities, mostly asbestos. The aim was to save the market from the collapse of its names.
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