Methods to Fund Technical Reserves in General Insurances

Dan Armeanu (), Ana-Maria Burca and Sorin Cioaca
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Ana-Maria Burca: Academy of Economic Studies, Bucharest
Sorin Cioaca: Academy of Economic Studies, Bucharest

Romanian Statistical Review Supplement, 2012, vol. 60, issue 2, 424-430

Abstract: Currently, great emphasis is placed on the necessity to maintain financial stability of insurance companies. Nobody knows exactly when and if an ensured risk will occur, or what is the exact measure of compensations the insurer must pay. However, these unknown variables can be evaluated with the help of actuarials methods of founding technical reserves that allow insurance companies to make sure they hold financial reserves that are adequate to assumed responsibilities. In order to honor at any time the engagements resulted from insurance contracts, insurance companies are compelled to form and maintain certain technical reserves, the compensation reserve representing the greatest element of liabilities in their balance sheet. Subsequently, these technical reserves hold a major role in ensuring financial stability for insurance companies, their correct estimation being absolutely necessary. Also, the option of founding technical reserves has a vital importance for insurance companies, because funds related to them are invested, and the gains thus achieved represent a great source of income. In the case of general insurances, the compensation reserve is estimated on the basis of actuarial techniques, the most known of these being the Chain-Ladder method and the Bornhuetter-Ferguson method. The Bornhuetter-Ferguson method proved to be useful for certain general insurance classes. Especially, when data are highly unstable, a method such as the Chain-Ladder technique can lead to unsatisfactory results.

Keywords: general insurances; compensation reserve; Chain-Ladder; Bornhuetter-Ferguson (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Date: 2012
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