Page 261 - RISK Management IC 86

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risk of it proving inadequate if in any year, the aggregate
retained losses exceed expected losses.

If a risk is insured, the impact of adverse claims
fluctuations falls on the insurer, but when a risk is
internally funded, any excess of losses over the
accumulated fund falls back on the organization, mostly
treated as charge against central reserves. Some
protection can be obtained by :
(a) Loading the periodic contributions
(b) Establishing a fund with such a capital reserve.

The size of the reserve required to reduce a fund's
probability of ruin depend upon individual circumstances
and the method for calculation will depend on the actuaries.
It basically involves estimating the potential variations in
aggregate actual losses from the expected losses. If
alternate uses for funds. For organizations having funds
with alternate uses, they might be unwilling to block such
a fund to establish a capital.

All these covers are most readily available in reinsurance
than in direct insurance. These covers can be arranged into
a captive insurance company or used for internal funding.

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