Which step is primarily responsible for estimating reserves and recording anticipated liability?

• A. Notice of loss
• B. Investigation and adjuster evaluation
• C. Settlement or litigation
• D. Reserve setting

Answer: (D)

Estimating reserves and recording anticipated liability is about accounting for the insurer’s expected future claim payments. The step that handles this directly is reserve setting. After the claim is noticed and initial facts are gathered, the adjuster and any involved actuaries use information about the claim’s severity, coverage, development patterns, and potential outcomes to project the total amount that will be needed to pay all related claims. That projected amount is then recorded as a liability on the insurer’s books, and it is updated as new information comes in and the claim evolves. The notice of loss starts the process, and investigation and adjuster evaluation provide the factual basis, but the act of estimating the ultimate cost and committing it to reserves is what reserve setting is all about. Settlement or litigation affects actual payments and may drive changes to reserves, but the primary responsibility for estimating and recording the liability lies in reserve setting.