Demystifying Premium Deficiency Reserves

The terminology and recognition of premium deficiencies have become increasingly familiar to insurance companies in recent years. This is largely the result of soft market conditions which have motivated many companies to maintain premium pricing while incurring consistent or sometimes more unfavorable claim development in order to remain competitive. Higher loss ratios have resulted in wider applicability of premium deficiencies to companies within the property and casualty industry and have made it critical for management to gain an understanding of the conceptual basis, requirements and key factors that trigger recognition.

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