Case reserves are estimates for insurance claims that have already been reported but have not yet been fully paid or settled.
They are one component of broader Loss Reserves. Incurred But Not Reported Reserves cover losses that have occurred but are not yet fully reflected in reported claim estimates.
How a case reserve works
Suppose an insurer estimates that a reported liability claim will ultimately cost $500,000 and has already paid $150,000.
Case reserve = $500,000 estimated ultimate cost - $150,000 paid = $350,000
The $350,000 is still an estimate. New medical information, repairs, litigation developments, coverage decisions, or settlement negotiations can change the expected ultimate cost.
Case reserves are not final claim costs
A newly reported claim may begin with limited information. A mature claim may have a much clearer expected settlement value. Case reserves can therefore move up or down as claims develop.
The balance also changes as payments are made. A reduction in a case reserve is not automatically favorable reserve development because part of the decline may simply reflect cash payments on the claim.
Case reserves versus IBNR
Case reserves relate to reported claims. IBNR captures losses that are not yet fully represented by reported claim estimates. Depending on an insurer's terminology, IBNR can also include expected future development on known claims beyond current case estimates.
This is why comparing only case reserves across insurers can be misleading. Different lines of business and reserving practices can produce different case-versus-IBNR mixes even when expected ultimate losses are similar.
Gross versus net case reserves
Insurers can present case reserves before reinsurance and net of expected reinsurance recoveries. Keep the basis consistent when comparing case reserves with total reserves, premiums, or development.
Investor interpretation
Case reserves are most useful as one part of the reserve system. Compare them with IBNR, claim payments, Reserve Development, and historical loss-development disclosures.
Repeated upward revisions to case estimates can be evidence that earlier claim estimates were too low, but the conclusion should be made by line of business and accident year rather than from one aggregate change.
Sources
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