Common use of Valuation Model Clause in Contracts

Valuation Model. We use the IBNP valuation model to value unpaid claims liabilities. The model estimates a client’s IBNP liability at a given valuation date and can also project that liability to a later date (if needed). While providing a fair amount of flexibility in setting assumptions, the IBNP valuation model ensures that our consulting actuaries use a consistent platform for calculations and consider all of the IBNP liability components below: Incurred-But-Not-Reported (IBNR) Claims Liability: The liability for claims that have been incurred, but not reported. Historical claims payment patterns (as exhibited in claims lag triangles) are extrapolated and adjusted for seasonality and trend to estimate ultimate incurred claims. Claims Issued But Not Cleared the Bank: The liability attributable to the lag between the time a carrier reports payment in a claims lag triangle, and the time the payment actually clears the client’s bank account. Margin: This is an explicit margin in liability estimates Liability for Runout Expenses: This component quantifies the costs for administrative fees to process claims paid after plan termination, if required by the administrator’s contract.