A.M. BEST analysis of insurance failures gives the following primary causes for Insurance failures:

a) Insufficient reserves: 34% of failures
b) Rapid Growth: 20% of failures
c) Alleged Fraud: 10% of failures
d)Overstated assets: 9% of failures
e) Catastrophe losses: 8% of failures
f) Significant change in business: 7% of failures
g) Impaired affiliate: 6% of failures
h) Reinsurance failure: 5% of failures.

Insufficient reserves are a common issue across the world and any CEO who wants to show great results in a particular year can play with the reserves and achieve his objective.

One of the responsibilities of the regulator is to ensure adequate reserves are reflected in the financials year after year by the insurance companies. The regulators depend on the appointed actuaries for ensuring this.

I am not sure whether in India public disclosure of “Reserving Triangles” is required by the insurance companies. But one company, which in its annual report has been consistently disclosing its reserving triangles since 2016 has been ICICI Lombard.

I would strongly recommend actuarial students to have a look at the ICICI Lombard annual report especially for “Loss Development Tables”. It beautifully shows the incurred losses and allocated expenses movement year after year. When we look at the deficiency/redundancy year after year, we can notice how beautifully this company has mastered the science of reserving.

Blog by Atmaram Cheruvu