Claims reserves

In 1996 Lloyd's set up Equitas to take over all non-life liabilities of the 1992 and prior years of account, US asbestos and pollution first among them, exposures sometimes going back decades whose reserves had kept rising. The claims reserve is that liability on the balance sheet: the future cost of claims already incurred at the closing date and not yet settled. It comes in two parts. Reported claims are reserved file by file by the claims handler; those incurred but not yet reported, or not yet fully valued, the IBNR, are projected from development triangles. It is the largest item on a non-life balance sheet, and the one where the result is decided: under-reserving flatters the year and pushes the bill onto later ones, over-reserving ties up capital and sets up releases that will show up in the accounts later. The difficulty grows with the length of the line. Motor own damage runs off in two years; a casualty claim can stay open for thirty, and award inflation, social as much as monetary, makes what looked settled drift. In cyber the history is too short for a triangle to say much, and reserving still leans heavily on case estimates.