Reserving and its types

Reserving is one of the concepts in insurance industry. Reserving helps the insurer to meet the future losses and the liabilities for the insured in case of claim settlements. The most common purpose to calculate a reserve are ¿ to determine liabilities to be shown in the insurer¿s published accounts ¿ if separate accounts have to be prepared for the purpose of supervision of solvency, to determine the liabilities to be shown in those accounts ¿ to determine the liabilities to be shown in internal management accounts, business plans and budgets ¿ to provide an independent opinion on the reasonableness or adequacy of the reserves booked by the insurer. ¿ to provide information to management as to how areas of the business are performing, and provide an indication as to the profitability of business currently being written ¿ to estimate the claims costs incurred in recent periods as an intermediate step in the rating process. ¿ to value the insurer for purchase or sale given that any estimated surplus or deficit in the booked reserves will directly affect the valuation of the company ¿ to negotiate a commutation for the buyer or seller