Which method of establishing case reserves is used most often when there are small variations in loss size for a particular type of claim?

• A. Individual case method
• B. Average value method
• C. Formula method
• D. Roundtable method

Answer: (B)

When losses for a given type of claim are fairly uniform in size, you can reliably estimate reserves by using the average value of a claim and applying it across all outstanding claims. The average value method builds on historical experience to determine a typical loss per claim, and then reserves are calculated as that average multiplied by the number of claims awaiting resolution. This approach is simple, stable, and efficient because the small variation means most claims will settle near the same amount, so averaging captures the expected outcome without needing to assess each claim individually.

In contrast, the individual case method focuses on each claim’s specifics and is more appropriate when loss sizes vary widely; the formula method applies fixed rules or percentages that may be too rigid for a homogeneous but variable environment; the roundtable method relies on expert judgment to reach a consensus, which is useful when data are sparse or highly uncertain.