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reserve for adverse loss development (adverse development
reserve).
1. Case Reserve
Petitioner’s case reserve is the aggregate of the amounts
determined by petitioner’s claim department to represent the
company’s total exposure for each claim. Upon receiving a claim,
petitioner’s claim department conducts an investigation to
determine petitioner’s potential liability and damages resulting
from the claim. Based upon this claim investigation, petitioner
establishes a case reserve.
During the years in issue, petitioner reserved a minimum of
$15,000 for each claim when it was received. Petitioner seeks to
estimate its exposure for each claim more firmly by reviewing
each claim at least three times shortly after it is reported (15
days, 45 days, and 100 days after being reported). Ultimately,
petitioner closes approximately one-half of all claims received
without making any payments.
The case reserve includes two components: Indemnity and
expenses. The indemnity component of the case reserve includes
judgments, settlements, and plaintiff’s attorney’s fees. The
expense component of the case reserve includes fees charged by
an attorney retained by petitioner to defend claims and all
expenses incurred by petitioner or with petitioner’s consent in
the investigation and negotiation of any claims.
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Last modified: May 25, 2011