Question

Q1.

Being a student of Insurance Accounting, you must be aware of the term Loss reserve that is an estimate of an insurer’s liability from future claims. Loss reserves are typically comprised of liquid assets, and they allow the insurer to cover claims made against policies that it underwrites. While estimating the loss reserves what factors does insurance company takes into account. Discuss also the Components of Loss Reserves.

Q2.

The primary role of a Loss Reserve Specialist is to opine on the adequacy of the loss and loss expense provisions, reflected in insurers’ statutory financial statements. What Criteria that can be considered in determining whether an individual qualifies as a loss reserve specialist.

Q3.

State the factors to be taken into considerations for loss reserve auditing procedures.

Answer 1

Factors to be considered while making loss reserve

1. Changes in the nature and volume of the portfolio and in the terms of loans.
2. Changes in the experience, ability, and depth of lending management and other relevant staff.
3. Changes in the quality of the institution’s loan review system.
4. Changes in the value of underlying collateral for collateral-dependent loans.
5. Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans.
6. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
7. Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio, including the condition of various market segments.
8. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

Components of loss reserve

componets are classified as per payment type.

1. loss

2. ALAE

3. ULAE

Qualificaitions of a loss reserve speacialist

knowledge of scale and complexity of the insurer’s business

Knowledge on requirements and standards of the Insurance Act

Possesses the appropriate integrity, competency,

Resources, qualifications and adequate experience

Factors to be considered for loss reserve auditing procedures

Developing Accounting estimates

Identifying areas where accounting estimates are requried

Understnading Internal control related to accounting estimates

Evaluating accounting estimates

Analysis of historical developement data

Testing of reserve estimates

Evaluating resonableness of the estimates