Nowhere is this more true than in reserving.
Sound reserves form the bedrock of financial stability.
In addition to being important to the balance sheet, sound reserves provide that true compass for your real costs and true pricing needs. As we get drawn further into the current cycle we need to be careful to separate fact from wishful thinking. It is possible that a component of this deterioration was due to overly optimistic assumptions about companies' ability to control costs through judicious underwriting or claims practices. Part of it may have been due to the belief that investment income would more than offset any shortfall in pricing. Part of it may have been due to management pressure.