Commutation of Claims

Insurance obligations (estimated as reserves for liabilities) held by a risk bearer are most often extinguished by a final claim and expense payment at the maturity of the case, be it a settlement or a court mandated verdict. Sometimes the risk bearer commutes a claim or a portfolio of claims (e.g. reinsurer to insurer) early at a discounted value. This study note examines such claim commutations from the following aspects: • Motivations of the parties • Actuarial considerations • Actuarial mathematics • Other stakeholders and issues • Comparisons to Merger/Acquisition Valuations, Loss Portfolio • Transfers, Policy Buybacks, Novations and Rescissions • Executive Summary and Conclusions • Appendix - illustration of accounting