Review

Outstanding claims reserves

The estimation of the Group’s outstanding claims is a key aspect of effective financial management. Not only does is have a direct impact on overall profitability, but it also impacts investment as different approaches are taken for capital and policyholders’ funds.

Insurance is an inherently uncertain business and much of Amlin’s business is large commercial insurance 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 reasonableness of the valuation of the claim. At any time there are a range of different 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 reserve prudently. However, to ensure that the reserving levels are consistent, we compare the accounted reserves with actuarial estimates that are set at a ‘best estimate’ level.

On an underwriting year basis, net claims reserves are at least £200 million above the actuarial best estimate.

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