Reserve adequacy from schedule F
Hello, could you please explain why schedule F helps access reserve adequacy? I am just a little confused because it is more intuitive for schedule p and 5 year loss historical exhibit since schedule p has 1 year and 2 year reserve development and 5 year exhibit had iris ratio 11.
Comments
You are correct that Schedule P and the Five-Year Historical Loss Development Exhibit are more directly related to assessing reserve adequacy than Schedule F. Schedule P provides detailed information on loss reserves, including one-year and two-year reserve development, which can be used to analyze the accuracy of a company's reserve estimates over time. The Five-Year Historical Loss Development Exhibit, which includes IRIS Ratio 11, is also useful for evaluating reserve adequacy by comparing the company's historical loss reserve development patterns over a five-year period.
Schedule F, on the other hand, focuses on reinsurance transactions, including ceded premiums, recoverables, and the reinsurer's credit quality. While Schedule F is not a primary source for evaluating reserve adequacy, it can provide some indirect insights into a company's overall risk management practices, including its use of reinsurance to transfer some of its risk exposure.
Understanding reserve adequacy requires analyzing various aspects of an insurer's financial statements, including both Schedule P and the Five-Year Historical Loss Development Exhibit. Schedule F, while not directly related to reserve adequacy, can still offer insights into the company's risk management practices and financial stability by showing how much risk the insurer is transferring to reinsurers. (Inadequate reserves for a group of claims could be a reason to want to offload that group of claims to a reinsurer, and Schedule F could provide information related such a transaction.)