Reserving for unknown liabilities

Document description

The consideration of unknown liabilities is a difficult area because there is a high degree of uncertainty involved in any analysis which can be performed. However, this uncertainty should not be used as an excuse to avoid carrying out any analysis where it is thought that there is potentially material exposure to such liabilities arising. This paper looks at some examples of unknown liabilities and a categorisation which may assist with identifying other potential liabilities. We consider some of the factors affecting the approach to reserving, and some methodologies which can be applied. We hope that this paper will be of use to practitioners who are involved in reserving classes of business with potential liabilities which are not reflected in the available historical data. We also hope that it will be a useful source of reference when justifying the reserving approach adopted to the Inland Revenue, regulators, reinsurers, auditors or other interested parties.