Claims reserves

Claims reserves are the liability recorded on an insurer's balance sheet to cover the future cost of claims already occurred but not yet fully settled at the reporting date. They break down into several elements, reserves for reported but not yet paid claims, whose cost is estimated file by file, and reserves for claims incurred but not yet reported, the IBNR, estimated by statistical methods. Claims reserves are the largest and most delicate item on a non-life insurer's balance sheet, because they rest on estimates of the future and directly condition the fairness of the result. Under-reserving artificially embellishes a year's accounts but defers the problem, whereas over-reserving needlessly ties up capital. The difficulty grows with the length of a line's run-off, low on quickly settled risks, considerable on long-tail lines where claims emerge and are re-estimated over many years. Inflation, in particular the inflation of repair costs and court awards, is a major source of reserve drift. In cyber, reserving is made uncertain by the brevity of the history and the rapid evolution in the nature of claims.

At year-end, an insurer reserves 50 million euros for reported claims and 18 million for IBNR; an acceleration in court-award inflation forces it to strengthen these reserves the following year.

provisions techniques, réserves de sinistres, claims reserves