Review
Financial management
Estimation of outstanding claims reserves
Estimation of the Group’s outstanding claims is another important part of our financial management. Not only is there a direct impact on overall profitability, but it also affects investment as different approaches are adopted for capital and policyholders’ funds. At 31 December 2008 net claims reserves totalled £1,332.0 million (2007: £1,080.0 million).
Insurance is an uncertain business and much of Amlin’s business is large commercial insurance or reinsurance which can be volatile. Our reserve estimation is completed on a regular quarterly basis at individual class level. The subjectivities which must be considered when assessing the level of outstanding liabilities include the risk profile of an insurance policy, class of business, timeliness of notification of claims, validity of claims made against a policy and validity of the quantum of the claim. At any time there are a range of possible outcomes at which the claims reserves could ultimately settle. As time passes the uncertainty surrounding likely claims settlement reduces and the level of caution is reduced.
Given this uncertainty we believe it is appropriate to adopt a cautious stance to the assessment of liabilities. Our underwriting and claims teams are responsible for proposing the level of reserves to be set. We believe that this ensures that they are accountable for the evaluation and uses their detailed knowledge of the underlying exposures underwritten, particularly as these change through time. We compare these reserves proposals with actuarial ‘best estimates’, which are set by the in-house actuarial team. Any necessary adjustments to the underwriters’ proposed reserve are then made and these are the accounted reserves. Consistency of reserving strength is our overall goal. On an underwriting year basis net reserves remain at least £200 million above the actuarial best estimate (2007: at least £200 million).
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