Does a required reserve change?

[jk]

Fall 2000, Question #1 asks:

"True or False: According to Wiser, 'Loss Reserving', the required loss reserve as of a given accounting date does not change from one valuation to the next."

The answer is "True", and indeed, per Wiser: The required loss reserve as of a given accounting date is the amount that must ultimately be paid to settle all claim liabilities . . . the required loss reserve as of a given accounting date is a fixed number that does not change at different valuation dates.But how can this be? Surely the required reserve changes as paid losses change!

[J.T.]

The required loss reserve is a set amount, known as soon as the insurance is sold. However, no one on this earth knows the number. Therefore, we approximate the reserve amount, but we never know it for sure.

[udjw828]

Fall 2000, Question #1 asks:

"True or False: According to Wiser, 'Loss Reserving', the required loss reserve as of a given accounting date does not change from one valuation to the next."

The answer is "True", and indeed, per Wiser: But how can this be? Surely the required reserve changes as paid losses change!

But as the paid losses change, the accounting date changes as well...the paid amount as of a given accounting date shouldn't change...

[2M]

But as the paid losses change, the accounting date changes as well...the paid amount as of a given accounting date shouldn't change...


As a general rule this is true and it seems to make sense for the exam. In real life, companies may occasionally restate the books for older valuations

[jk]

But as the paid losses change, the accounting date changes as well...the paid amount as of a given accounting date shouldn't change...I thought it was the evaluation date that changes. I admit I have trouble with the difference between accounting date and valuation date. Say I'm setting a reserve for Accident Year 2001 claims using loss data as of 12/31/2003. My understanding is that the accounting date is 12/31/2001 and the valuation date is 12/31/2003. If I look at these claims again a year later, the valuation date has changed, the paid losses have changed, the required reserve has changed (because the paid losses have changed), but the accounting date is still 12/31/2001. No?

[dumples]

but the accounting date is still 12/31/2001. No?
No.

[Sotally Tober]

The required reserve does not change. It is a number, that is only known at the end. It is the bullseye. It'll be, what it'll be. We just don't know what it is. It is what we are trying to estimate. Regardless of acctg. date, the ACTUAL ultimate losses won't be any different at any point in time. Only our estimates will change.