Motor Third-Party Reserving: Which Number Do You Sign?

I would not sign either figure unadjusted - the 13% gap between methods tells me the method, not the data, is driving the answer.

• Diagnose the 2.10 factor. A jump that size usually reflects either fewer closures (tribunal backlog inflating case reserves and therefore development) or genuine award inflation. Split the triangle into large claims (above ₹1 crore), attritional claims, and settlement counts versus average size. If deterioration comes from case-reserve strengthening on open claims rather than paid amounts, chain-ladder over-reacts; if average paid awards are rising 10% on a long tail, chain-ladder under-reacts because it is anchored on historical inflation.
• Adjust for inflation explicitly. Gross up historical payments to current award levels using 9–11%, re-project, and add a tail loading beyond the observed period - motor TP can run 8–12 years.
• Test the BF assumption. BF is more stable but depends on the expected loss ratio; check whether the latest year reflects the new normal or is distorted by reserve strengthening.
• Present a range. Central estimate towards the prudent end (roughly ₹4,400–4,650 crore), disclosing method, tail and sensitivity to ±100bps of inflation and to settlement speed.

Discounting. Show the undiscounted reserve as the base and disclose any discounting benefit separately. A 6.5% discount rate is only defensible if claim inflation is below it; with awards inflating at 9–11%, the real discount is negative and the credit flatters the balance sheet. Quantify sensitivity to the discount rate rather than presenting a single discounted figure as the truth.

Reinsurance recoveries of ₹140 crore. Do not net these against gross reserves until recoverability is established. Treat them as a separate asset exposed to credit and dispute risk. Steps: obtain the treaty wording on notification, claims control and aggregation; get the reinsurer's objection in writing; provide against the disputed portion (50–100% depending on the strength of the wording); and check whether the dispute is a pattern affecting other claims or years.

Solvency impact. Gross up reserves, deduct the doubtful recovery from available capital, and re-run the ratio. If strengthening is, say, ₹350 crore and the recoverable asset is written down by ₹140 crore, a ratio that looked comfortable can fall below the 1.50 control level before any new business is written. The board needs that arithmetic before it approves anything else - and it needs it before the auditor asks.

Deliver three things to the board and auditor: a reserve opinion with a best estimate and a range; the methods used and the data limitations (settlement slowdown, award inflation, unconfirmed recoveries); and the specific uncertainties with their quantified sensitivities. Record the peer review of the triangle and of the alternative methods.

If asked to release reserves to hit a profit target:

• Ask for the rationale in writing - which emergence pattern or data supports the release? Usually there is none, only a target.
• Explain that a release unsupported by the data is a misstatement, not a judgement call.
• Offer legitimate levers: a defensible alternative method, settlement of the disputed recoveries, expense or commission timing.
• Refuse to certify an unsupported number. Under the code of conduct, commercial pressure cannot override professional judgement; your opinion and reputation are the firm's evidence of integrity.
• Escalate: inform the Audit Committee, record a contemporaneous note of the request, and if the pressure persists, consider qualifying the actuarial opinion or resigning. Both are credible last-resort signals and far cheaper than a restatement.

Keep the peer reviewer informed throughout - a second opinion on record protects both the actuary and the company.