PINS S3.2 Risk management policy — reserving risk

(1) An insurer's risk management policy for reserving risk should include:
(a) a process for the ongoing review and appraisal of the insurance liability valuation framework (including the assumptions made and reinsurance recoveries estimated);
(b) procedures and controls to ensure that the provision for insurance liabilities is, at all times, sufficient to cover any liabilities that have been incurred, or are yet to be incurred, on contracts of insurance accepted by the insurer, as far as can reasonably be estimated;
(c) the methods to be applied in estimating the provision for insurance liabilities, including provisions for individual notified incurred claims;
(d) the methods to be applied in estimating the amount of the asset for reinsurance recoveries that are expected to arise on crystallisation of the gross insurance liabilities (the manner of estimating those assets must be consistent with the manner of estimating the gross liabilities, unless there is a sound justification for doing otherwise);
(e) procedures and controls to ensure that the selected approaches are applied accurately and consistently;
(f) procedures to review and monitor, on a regular basis, the out-turn of provisions made in previous years for insurance liabilities (gross and net of reinsurance recoveries);
(g) procedures to ensure that in-house or external specialists selected have the appropriate level of skill and experience and have available the necessary information to carry out the estimation required;
(h) suitable controls to ensure that the data used in determining the insurance liabilities are extracted from the underlying records accurately and to the necessary level of detail; and
(i) scenario testing for several years into the future, particularly for an insurer conducting long-term insurance business.
(2) For paragraph (1) (a), in conducting a review and appraisal of the insurance liability valuation framework, consideration should be given to emerging pricing and claim payment trends.
(3) For paragraph (1) (c), in determining a provision estimation method, an insurer may consider alternative approaches before selecting those regarded as most appropriate to the nature of the business.
(4) For paragraph (1) (h), the level of detail of the data used in determining the insurance liabilities should be sufficient to ensure that the data available covers the whole of the insurer's liabilities and exposures under insurance contracts.
(5) In addition to the actuarial advice an insurer is required to obtain under Chapter 9, an insurer should consider the use of actuaries or other appropriately qualified and experienced loss reserving specialists to estimate insurance liabilities periodically through the year.
(6) The insurer should undertake periodic testing of its reserving processes and the level of its reserves, including continual reassessment of assumptions used, and testing the sensitivity of the valuation of insurance liabilities to stress arising from realistic scenarios relevant to the circumstances of the insurer.
Inserted by QFCRA RM/2013-1 and amended by Editorial changes (as from 1st January 2015).