The role of the unexpired risk reserves and outstanding loss reserves in general insurance business

The intent of this article is to introduce the topic of both Unexpired Risk Reserve and loss Reserving, especially of the Incurred but not reported reserves (IBNR). We will focus on the purpose, common definitions and basic principles. We will explore the common techniques used by practicing actuaries in estimating of Unexpired Risk Reserve and loss reserves. Unexpired Risk Reserve is the present value of loss and expense payments to be provided for by premiums covering the period from the valuation date to expiry on all contracts in force on the valuation date. A loss reserve is a provision for an insurer’s liability for claims. Loss reserving is a major challenge to the casualty actuary because the estimation process involves not only complex technical tasks but considerable judgment as well. This are a critical point, as the actual financial reserves in the accounts has a direct impact on shareholder’s equity, solvency, and also on underwriting profit.