Category: Reserving · Reviewed by Jake Leat, Associate Director · Last reviewed
Case reserve
A case reserve is the amount set aside by an insurer in respect of a specific reported open claim, representing the estimated ultimate cost of settling that claim. It is the building block of the Outstanding Claims Reserve (OCR).
Setting principles
Best estimate — neither prudent nor optimistic; intended to reflect the most likely settlement value.
Including allocated loss adjustment expense (ALAE) — defence costs, expert fees, third-party costs assignable to the specific claim.
Excluding unallocated loss adjustment expense (ULAE) — internal handling costs, reserved separately as a bulk reserve.
Net of recoveries anticipated from subrogation, salvage, contribution, but only when reasonably certain.
Common biases
Initial reserve anchoring — first reserve set when limited information is available tends to underestimate.
Closure bias — late-development re-opening of “closed” claims.
Heavy-end optimism — large complex claims tend to under-reserve early.
Reserve fatigue — long-tail claims that sit in the same reserve for years often need increasing as plaintiff strategy develops.
Periodic peer review and statistical pattern monitoring address these biases.
