Category: Specialist underwriting · Reviewed by Simon Temme, Account Executive · Last reviewed May 2026
A mid-tier construction consultancy with around 90 staff went into a renewal cycle in early 2026 with a clean payment record. Not a single penny had been paid out by its insurers on any claim during the policy period. And yet the renewal indication came back with a rate increase in the order of 60 per cent. The managing partner was understandably perplexed. The position, when the broker walked it through, was simple if uncomfortable: across three open matters, the incumbent insurer had set total reserves of approximately £4 million. None had been paid. All sat as open case reserves on the insurer’s loss record for the firm. From the renewal underwriter’s perspective they looked, for pricing purposes, identical to £4 million of paid losses. This article explains why that is, how insurers reserve PI claims, and what a broker can practically do to manage the position.
Insurers reserve claims in two principal categories. Case reserves — sometimes shortened to RBNS, for “reported but not settled” — are set for individual claims that have been notified to the insurer. Each open claim carries a case reserve representing the insurer’s current best estimate of what it expects to pay. The reserve covers both the indemnity (the amount payable to the claimant or in settlement) and the defence costs needed to bring the matter to resolution.
Alongside case reserves sits an allowance for IBNR — “incurred but not reported”. This is the actuary’s estimate of claims that have happened but have not yet been notified to the insurer. PI is a long-tail class and IBNR loadings can be substantial: a year may not be considered fully developed for five, seven or even more years after the underwriting year closes. Insurers also typically maintain a sub-category sometimes called IBNER — “incurred but not enough reserved” — capturing the actuarial expectation that case reserves on already-notified claims will develop adversely over time.
Two further distinctions matter for understanding what sits on a firm’s loss record:
A material PI claim follows a recognisable trajectory. Understanding the stages is essential to understanding how reserves move.
Notification and initial reserve. A claim or circumstance is notified to the insurer. The claims handler opens a file, performs a preliminary assessment of alleged quantum and applicable policy terms, and sets an initial case reserve. At this stage the reserve is necessarily rough. It will often be set with reference to the alleged quantum stated in any letter of claim, the policy limit available, and the handler’s general experience. In larger or more complex matters the initial reserve may be conservative — set at a level that prudently reflects the insurer’s potential exposure pending further investigation.
Defence development. Counsel is instructed, witnesses are interviewed, experts are appointed, and the substantive defence position takes shape. As the case develops, the reserve is revised. A defence with strong prospects on liability typically attracts a reserve release; a defence whose prospects deteriorate attracts a reserve strengthening.
Mediation or other ADR. Many PI claims resolve before trial. Mediation typically occurs after the substantive disclosure and expert phases. Reserves are usually re-set in the run-up to mediation to reflect the realistic settlement range.
Resolution. The claim resolves by settlement, discontinuance or, less commonly, judgment. The reserve closes out against the actual paid amount. Where the paid amount is less than the reserve, the difference is released. Where it exceeds the reserve, the difference is a reserve strengthening at point of payment.
For material PI matters the lifecycle commonly runs three to seven years from notification to resolution. In construction-related PI, where limitation issues and multi-party disputes are common, lifecycles of ten years or more are not unusual.
Counsel’s written opinion is one of the principal drivers of case reserves during the development phase. Insurers typically seek a substantive opinion at three points: shortly after the substantive defence is articulated; before or after disclosure and expert evidence; and immediately before mediation or other settlement discussions.
Each opinion typically addresses three questions: liability prospects (the percentage chance the firm is found liable if the matter goes to trial); quantum range (the likely range of damages if liability is established); and a recommended settlement strategy. Reserves are then adjusted to reflect counsel’s quantum range, typically weighted by the liability assessment.
For the insured firm and its broker, a counsel update is often the single most useful tool for managing the position with the insurer. A favourable opinion update that arrives in time to influence the renewal underwriter’s view of reserves is materially valuable. An opinion that lands in October is unlikely to move a January renewal; an opinion in July may.
The mechanism by which open reserves drive renewal pricing is worth being precise about, because it is widely misunderstood at partner level.
The renewal underwriter assessing a firm’s risk does not see paid losses in isolation. They see the firm’s full claims history, broken down by status: paid (closed) claims, and open reserved claims. For pricing purposes the renewal underwriter typically treats open reserved claims as expected losses on the firm — equivalent to paid losses of the same amount. A firm with £4 million in open reserves and zero paid claims, and a firm with £4 million paid and zero open, look extremely similar from the underwriter’s perspective. In some cases the open-reserved firm looks worse, because the actuary may add a development loading to the open reserves to reflect the expectation that, on average, they will strengthen further before they close.
This produces a counterintuitive result. A firm that has not paid out a penny can be charged as if it had paid out millions. The renewal underwriter is not pricing on cash; they are pricing on expected ultimate cost.
There is one further wrinkle. Reserves are often over-set in the early years of a claim. As the defence develops and prospects clarify, reserves are released. But the renewal underwriter at year T+1 typically sees reserves as at the most recent reserve date, not as they will look at year T+3. Releases that happen later do not benefit the early renewal year. By the time the release lands, the firm has already paid the price.
Where multiple respondents are involved in the same underlying matter, an insurer typically reserves at gross of expected contribution from co-defendants. The reasoning is prudent: the contribution may not materialise, the co-defendant may be insolvent, or the contribution may be reduced or denied. From the firm’s perspective this means the open reserve on a single matter with three co-defendants may look the same as if the firm faced the matter alone.
There is broker-side work to be done here. Arguing for aggregation of related matters under the policy’s aggregation clause can reduce the apparent quantum on the firm’s loss record. Arguing for partial release of reserves to reflect realistic contribution from solvent co-defendants can have the same effect. Neither is a free lunch — insurers are appropriately cautious — but the analysis is worth running pre-renewal.
The legal framework for aggregation has been re-stated by the Supreme Court in AIG Europe Ltd v Woodman [2017] UKSC 18, which considered the construction of aggregation clauses in the context of solicitors’ minimum terms. The principles set out there inform the construction of aggregation language in commercial PI wordings.
Even where a firm has no open notified reserves, the renewal underwriter typically applies an IBNR loading. This reflects the actuarial reality that some claims arising from the firm’s work during the policy period have not yet been notified — and may not be notified for years. IBNR loadings vary by class, profession, claim record and tenure with the insurer, but they are a real input to the rate.
For firms with a long clean history and stable tenure, IBNR loadings are typically modest. For firms with recent material claims, recent expansion into new service lines, or recent partner-level turnover, IBNR loadings can be substantial. This is one of the reasons why a single material claim can affect rates for several renewal cycles even after it closes — the insurer’s expectation of further IBNR development persists.
A broker working a firm with open reserved claims has a defined set of levers. None are guaranteed; all are worth running.
Mid-year reserve review. Six months before renewal, the broker should request a formal reserve review with the incumbent insurer. The purpose is to ensure the insurer’s reserves reflect the current state of defence development, and to identify any matters where a release is appropriate. The conversation is more productive when prepared, with counsel updates and defence-position summaries to hand.
Counsel update before renewal submission. Where defence positions have improved, a fresh counsel opinion landing before the renewal submission is the single most useful piece of evidence to put before the underwriter. The opinion needs to be substantive; a one-line update from counsel does not move a renewal rate.
Aggregation analysis. Where multiple claims arise from related circumstances or a single source, an aggregation argument may consolidate exposure under one limit and reduce the apparent claims count. The argument requires close reading of the policy aggregation clause and supporting case law.
Co-defendant contribution review. Where reserves are set gross of contribution, identifying solvent co-defendants and their likely contribution can support a partial release.
Submission narrative. The renewal submission itself should explain reserves rather than merely list them. A handler’s narrative on each open matter — defence position, counsel’s view, settlement range, expected resolution timing — gives the renewal underwriter context that raw numbers do not.
None of these is a substitute for actually having a clean claims record. But for a firm with material open reserves, they are the difference between a renewal that prices on the worst-case interpretation of the position and one that prices on a defensible realistic assessment.
A counterintuitive but important point: even at the same nominal financial exposure, a firm whose claims are paid and closed is in a stronger renewal position than a firm whose claims are open and reserved at the same amount.
The reasons are several. Paid claims have crystallised; the renewal underwriter knows what happened and can assess it as a discrete historical event. Open reserves carry development risk — they may strengthen before they close. Closed paid claims also begin to age off the loss record; most renewal underwriters look hardest at the most recent three years. Open claims continue to count in the most recent three years for as long as they remain open, which can be a decade or more on construction PI.
For a firm with a single large historical loss now closed, the rating impact typically fades over three to five renewal cycles. For a firm with similar exposure still open and reserved, the rating impact persists for as long as the reserve remains on the books.
For brokers and senior decision-makers wanting to assess an insurer’s reserving discipline in the abstract, several public sources help. The Lloyd’s market produces annual results commentary which addresses prior-year reserve movement at the market level and, in some classes, at a sub-class level. Solvency II SFCRs published by individual insurers contain commentary on reserve adequacy and any prior-year reserve releases or strengthenings. The Prudential Regulation Authority publishes thematic reviews from time to time on reserving practices in long-tail lines. The ABI publishes occasional industry-level commentary on claims trends.
None of these gives a firm-specific answer about the insurer holding a firm’s PI cover, but together they help calibrate whether a particular insurer’s reserving is consistent with market practice. An insurer whose reserve releases run materially below market over time is reserving aggressively; one whose releases run above market is reserving conservatively. Neither is in itself good or bad, but it shapes how the insurer is likely to engage with a firm’s open claims and reserve-release requests.
A case reserve is the insurer’s estimate of the ultimate cost of a specific claim that has been notified. IBNR — incurred but not reported — is the actuarial allowance for claims that have happened but have not yet been notified to the insurer. Both contribute to the insurer’s overall claims liability for the policy year.
Renewal underwriters price on expected ultimate cost, not on cash paid to date. An open reserved claim represents the insurer’s current best estimate of what will eventually be paid out. From the underwriter’s perspective, £1 million reserved and £1 million paid look very similar — and in some cases reserved looks worse, because an additional development loading may be applied to reflect the expectation of further reserve strengthening.
Sometimes. Reserves should reflect the insurer’s current best estimate, and where defence development supports a lower estimate — for example, after a favourable counsel opinion or successful disclosure phase — a partial release can be argued. The conversation needs to be evidence-led and is typically more productive when run six months before renewal rather than two weeks before.
For material PI matters, three to seven years from notification to resolution is typical. Construction-related PI and certain other long-tail sub-classes can run ten years or more, particularly where limitation issues or multi-party disputes are involved.
A paid-not-reserved position means the claim has been settled or otherwise resolved and the payment is recorded as paid. It is generally stronger than an open-reserved position of the same nominal amount because paid claims have crystallised, carry no further development risk, and begin to age off the loss record. Open reserves continue to count for as long as they remain open.
Yes. Even where a firm has no notified open claims, renewal underwriters typically apply an IBNR loading reflecting the actuarial expectation of claims yet to be reported. The loading varies by class, profession and individual claim history but it is a real input to the renewal rate.
Where the policy permits aggregation of related claims, multiple matters may be consolidated under a single limit and a single retention. This can materially reduce the apparent claims count and the apparent exposure on the firm’s loss record. The aggregation framework was re-stated by the Supreme Court in AIG Europe Ltd v Woodman [2017] UKSC 18 and the analysis turns on policy wording in each case.
The most useful evidence is typically a fresh and substantive counsel opinion addressing liability prospects, quantum range and recommended strategy. Supporting material can include the latest defence position summary, expert reports, and any indication of co-defendant contribution. A one-line “we think we’re winning” update from counsel will not move a reserve; a properly reasoned opinion can.
Apex Insurance Brokers Ltd is an independent UK insurance broker based in Bristol, advising professional services firms on professional indemnity insurance and related covers. The firm is authorised and regulated by the Financial Conduct Authority (firm reference 724952) and registered at Companies House (company number 07014570).
This commentary reflects market conditions as at May 2026 and is provided for general information. Insurance market conditions, policy wordings and regulatory positions change frequently; firms should obtain advice specific to their circumstances rather than rely on general commentary.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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