Reserve adequacy is assessed by comparing established reserves against the eventual cost of claims. Reserves that prove insufficient produce adverse development, requiring strengthening that flows through earnings.
Actuaries evaluate adequacy at the portfolio level using development patterns.
Alternative Names:
Reserve Sufficiency, Adequate Reserving
Why it Matters?
Adequacy pressure shapes carrier behavior in ways defense counsel encounter directly. A book experiencing adverse development produces tighter reserving guidance, closer scrutiny of defense spend, and greater interest in early resolution of claims that could develop unfavorably. Social inflation in liability lines has driven strengthening across the industry, which is part of why demand response discipline has become a sharper focus.
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Related terms
Frequently asked questions
What is adverse development?
How does reserve pressure affect defense practice?
