Loss Reserves in the London Market

This paper addresses the process of estimating loss reserves for a company or syndicate writing in the London Market. Particular emphasis is placed on insurers maximizing the value of the process, and ensuring that the process is not simply a series of mathematical calculations. The use of sophisticated mathematical techniques should not distract from the importance of understanding the business and ensuring that the data are correct. Sophisticated mathematical techniques can give rise to misleading impressions of confidence and accuracy to estimates, which are often subject to considerable uncertainty. The principles (rather than the detailed techniques) are illustrated by a case study based on a hypothetical London Market writer. Many of these principles are relevant to other markets.