The catastrophe-in-transit (CIT) reserve should be included to cover the liability for the claims that remain unpaid and unrecorded.

Question

Options

• ATrue
• BFalse

• A
  73% (16)
• B
  27% (6)

Explanation

Option A is correct because the Catastrophe-in-Transit (CIT) reserve is specifically designed to capture the full liability arising from a catastrophe event - including claims that have been reported but not yet paid, as well as claims that have occurred but haven't yet been recorded (similar to IBNR reserves). Since catastrophes generate a large volume of claims over an extended period, many losses are still emerging when financial statements are prepared, making both unpaid and unrecorded claims central to the CIT reserve's purpose.

Option B (False) is incorrect because excluding unrecorded claims would cause the insurer to understate its true liability, leading to inadequate reserves - a fundamental violation of sound reserving practice.

Memory tip: Think of CIT as a "net" cast over the aftermath of a catastrophe - it must be wide enough to catch all losses, whether already on the books (unpaid) or still floating in (unrecorded). If the net has holes, the reserve is deficient.

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