Which of the following is the characteristic of an actuarially sound loss reserve?

Question

Options

• AIt is for a defined group of claims.
• BIt is as of a particular valuation date.
• CIt is for liabilities that existed on a particular accounting date.
• DAll of the above

• A
  3% (1)
• B
  10% (3)
• C
  7% (2)
• D
  80% (24)

Explanation

Option D is correct because an actuarially sound loss reserve must satisfy all three characteristics simultaneously - they are not alternatives but cumulative requirements that together define what makes a reserve actuarially sound. A defined group of claims (A) establishes the scope of what is being reserved; a specific valuation date (B) anchors the estimate in time, since reserve amounts change as claims develop; and a particular accounting date (C) ties the reserve to the liabilities that had already come into existence, excluding future events. Since none of A, B, or C is sufficient on its own - and none is incorrect - "all of the above" is the only complete answer.

Memory tip: Think of the three characteristics as Who, When (valued), When (accrued) - who are the claims (defined group), when was the reserve measured (valuation date), and when did the liability arise (accounting date). A reserve missing any one of these legs can't stand as actuarially sound.

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