Risk Margins for Discounted Loss Reserve

The purpose of this document is to outline the issues surrounding the uncertainty in estimating reserves for losses and loss adjustment expenses for property/casualty insurers (hereinafter labeled "loss reserves") and the appropriateness of presenting this uncertainty in terms of an explicit "risk margin." The particular context is where loss reserves are presented on a present value discounted basis. This document was prepared by the Committee on Reserves of the Casualty Actuarial Society. The Committee has drawn upon several sources in preparing this document, including "Risk Theoretic Issues in the Discounting of Loss Reserves" by the CAS Committee on Theory of Risk and "Position Paper on the Methodologies and Considerations Regarding Loss Reserve Discounting" by the CAS Committee on Reserves, both published in the Fall 1987 Edition of the CAS Forum. The Committee takes no position on the advisability of presenting loss reserves on a discounted basis and nothing in this document should be construed to imply otherwise.