Loss reserving under inflationary conditions—the peculiar round figures effect

Due to the inability to produce an exact figure for the “true” loss, insurance claims (paid and reserved) are often stated in terms of round figures. The use of case by case reserving may cause the loss reserves to behave strangely in times of inflation—depending on the specific rounding mechanism, its “memory”, and the initial composition of the loss reserve. The analysis of the round figures effect was carried out with the aid of numerical demonstrations, but, clearly, the tools of mathematical chains and jump processes could be applied in future extensions.