[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Reserve Adequacy** ## Definition ==Reserve Adequacy== is the measure of whether loss reserves are sufficient to cover the ultimate cost of unpaid claims, assessed through various testing and monitoring techniques. ## Assessment Methods ### Loss Ratio Tests ``` Reserve Adequacy Ratio = Actual Loss Ratio / Expected Loss Ratio > 1.0: Potentially inadequate < 1.0: Potentially redundant ≈ 1.0: Adequate ``` ### Development Tests ``` Compare: - Actual development vs. expected - Prior estimates vs. current - Emerging patterns ``` ### Diagnostic Indicators - Increasing loss ratios by AY - Consistent adverse development - Paid-to-incurred ratios - Case adequacy metrics ## Related Concepts - [[Indicated Unpaid Losses#Definition]] - [[Actual vs Expected Analysis#Definition]] - [[Roll Forward Analysis#Definition]] ## References - Friedland, Chapter 11 - ASOP 43