A Change Agenda for Reserving. Report of the General Insurance Reserving Issues Taskforce (GRIT)
Authors: Jones A. R. , Copeman P. J. , Gibson E. R. , Line N. J. S. , Lowe J. A. , Martin P. , Matthews P. N. , Powell D. S. 
Published: June 2011

ABSTRACTReserving is important to our profession as it is a core activity for actuaries. The members of the General Insurance Reserving Issues Taskforce (GRIT) have been considering how actuaries can improve the way in which we do reserving in general insurance. We gathered our thoughts and recommendations together in a Consultation Paper which has been discussed widely in the profession. We are very grateful to everyone who shared their views and comments with us, particularly those who gave us written feedback. We have considered carefully all the feedback which we received and adapted our final report in response to this.Given the scope and importance of our remit, it is perhaps not surprising that this is not a short paper. We hope that Section 1 provides a reasonable summary.Generally, our view is that there are many things on which our profession should focus. However, it is also important to remind ourselves of the positive items of feedback which we heard from our stakeholders. In addition to many suggestions for things to do better, we consistently heard the message that actuaries play an extremely valuable role in general insurance.This is a major testimony to the progress which the actuarial profession has made in recent years in its ability to contribute to the general insurance industry. Perhaps it is because of this progress that now is an appropriate time for us, as a profession, to take a hard look at what we do in reserving, and ask ourselves whether there are any things which we could do differently. We hope that GRIT's report will facilitate this debate.GRIT's recommendations fall under the following key themes:— Providing more transparency to our reserving methods and helping our stakeholders have more insight into the key reserving assumptions and decisions.— Providing more information on uncertainty in our reserve estimates. In particular, we recommend that actuaries provide a quantitative indication of the range of outcomes for future claim payments, and that our profession defines a common vocabulary for communicating uncertainty.— Understanding better the business we are reserving. We suggest a range of analyses and activities for doing this.— Applying our standard actuarial reserving methods more consistently. We identify a list of specific areas where we believe that there is scope for improvement. Also, we believe that the actuarial training syllabus should be extended, and this leads to consideration of whether a more specialised general insurance actuarial qualification is needed.— Understanding the implications of the underwriting cycle, which, we believe, influences the behaviour of claims development in a way that our reserving models do not currently capture. We suggest what we believe may be the foundations of a potentially more cycle proof methodology, but this is an area which we believe will require much more research.— Helping actuaries understand how behaviour can affect the reserve estimation process, particularly in the face of uncertainty. We make various suggestions in this area, including helping actuaries manage pressure from third parties.We are convinced that, for our profession to implement these suggestions, it will require a concerted change management strategy and set of actions to embed changes into the way in which actuaries work. We believe that this will include:— increasing the level of debate and research in the profession on claims reserving;— a broader communication programme with the general insurance industry, covering, amongst other things, uncertainty and data quality;— a sub-group of the GI Board with a specific focus on reserving, responsible for implementing GRIT's recommendations and dealing with new issues as they arise; and— our profession resolving the conflicting pressures which will arise out of the extra work required for reserving by the GRIT recommendations.There is one specific item where we have not made a recommendation. It has been suggested to us that many of the standard reserving methods in common use, such as the chain ladder, are not sophisticated, and that more sophisticated mathematical and statistical methods should be a priority. We do not agree with this. Whereas, in the longer term, this might be an important issue for our profession, we believe that the current focus for actuaries should be in the areas set out in this paper, such as understanding the business better.GRIT believes that the issues which we have identified are important for the future of our profession and the contribution which we can make to the general insurance industry.