Insurance Reserving Thematic Review 2024

Summary

This is a thematic review published by the GFSC summarising the findings of a review into reserving methodology and practices among general insurers and reinsurers licensed in Guernsey. It is not a new rule but recommends good practice and reminds firms of existing legal responsibilities relating to reserving governance under the Insurance Business Law and Insurance Solvency Rules.

• Scope: Reviewed staffing and resources, policies and procedures, oversight and controls, and board reporting relating to claim reserves (including IBNR) at a sample of 20 general insurers and reinsurers out of a population of approximately 350.
• Overall finding: Reserving standards across the sampled firms were generally adequate, with knowledgeable staff and appropriate systems, though sophistication varied with firm size and complexity.
• Areas to consider: Ensure sufficient oversight of fronting insurers and outsourced claims functions (e.g. detailed service level agreements); regularly review and update case reserves, including those set by third parties or fronting companies; keep reserving policies current and reflective of inflation, with revisions evidenced; consider tailoring reserving procedures to distinct policy types.
• Existing legal responsibilities restated: Licensed insurers must maintain reserve risk capital per line of business less diversification adjustment; boards must set and oversee risk strategy and risk appetite; boards must oversee design and implementation of risk management and internal control systems; insurers must operate effective risk management and internal control systems; insurers must have an effective risk management function and access to an internal audit function; boards should conduct an annual review of governance and internal control effectiveness.
• Appendix: A self-assurance questionnaire is provided for boards to check reserving governance practices against good practice expectations.

The review does not create new binding rules but functions as supervisory guidance highlighting expected standards and recommended improvements; firms are encouraged to use the self-assurance checklist to benchmark their reserving governance.

Key obligations

• Licensed insurers must maintain reserve risk capital equal to the sum of reserve risk capital for each line of business, less a diversification adjustment.
• A licensed insurer's board must set and oversee implementation of the insurer's business objectives, strategies, risk strategy and risk appetite.
• A licensed insurer's board must provide oversight of the design and implementation of sound risk management and internal control systems and functions.
• A licensed insurer must establish and operate within effective systems of risk management and internal controls.
• A licensed insurer must have an effective risk management function capable of identifying, assessing, monitoring, managing and reporting on key risks in a timely way.
• A licensed insurer must have, or have access to, an appropriate and effective internal audit function providing independent assurance on governance, risk management and internal controls.
• A licensed insurer's board should carry out an annual review of the effectiveness of its corporate governance and internal controls.
• Firms should ensure sufficient oversight of fronting insurers and outsourced claims functions, including through detailed service level agreements.
• Firms should regularly review and update case reserves, including those set by third parties or fronting companies, to reflect emerging experience.
• Firms should keep reserving policies up to date, factor in inflation, and evidence revisions appropriately.

Applies to

general insurers, reinsurers, licensed insurers under the Insurance Business Law, insurance managers