Liabilities for Extended Reporting Endorsement Guarantees Under Claims-Made Policies

This paper discusses the need to provide specific liabilities in certain situations where the writer of claims-made policies has guaranteed that an extended reporting endorsement will be available to the claims-made insured at some future date. The concept of economic equivalence between claims-made and occurrence-based insurance mechanisms is introduced and it is demonstrated that there is no difference in accrued liability between a continuous series of occurrence-based policies and an equivalent continuous series of claims-made policies followed by an extended reporting endorsement. The need for specific accruals of extended reporting endorsement liabilities is discussed in the case of inadequately priced claims-made products and in the case where extended reporting endorsement issuance is guaranteed at no additional charge under specific circumstances.