California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 3 - Insurers
Article 4.5 - Loss and Loss Expense Reserves
Section 2319.1 - Reserve Test Method

(a) Every insurer shall immediately establish an effective method for testing the adequacy of loss and loss expense reserves previously established and reported in the annual statement.

(b) Such method shall include provision for the estimation of the current adequacy level.

(c) Such method must be adequately describe and shall include a description of the insurer's claim practices to the extent that they affect the data used in the reserve test method. Such description shall include, among other things, the definition of a late-reported claim, the definition of a reopened claim, changes in claim practices, the procedures used to verify that the tabulation of outstanding claims at a given date contains all of the files of open claims as of such date, and other pertinent information. This description is to be continuously updated and immediately available to the Commissioner on request.

(d) Such method shall provide a means of testing as of June 30 the adequacy of each calendar year's reserves previously established.

(e) The data must be fully reconcilable to annual statement type data.

(f) If a material deficiency is indicated by the reserve test method for the reserves as established, the insurer shall take corrective action prior to the preparation of the next subsequent annual statement.

(g) Such method shall also separately estimate the deficiencies in the reserves for reported claims.