What actuarial methodologies and assumptions does Budget use to estimate the reserve requirements for self-insurance claims?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
uded in operating expenses within the Consolidated Statements of Operations; however, the net gain or loss of currency transactions on intercompany loans and the unrealized gain or loss on intercompany loan hedges are included within interest expense related to corporate debt, net.
Self-Insurance Reserves
The Consolidated Balance Sheets include $451 million and $397 million of liabilities associated with retained risks of liability to third parties as of December 31, 2024 and 2023, respectively. Such liabilities relate primarily to public liability and third-party property damage claims, as well as claims arising from the sale of anciliary insurance products including, but not limited to, supplemental liability, personal effects protection and personal accident insurance. These obligations represent an estimate for both reported claims not yet paid and claims incurred but not yet reported. The estimated reserve requirements for such claims are recorded on an undiscounted basis utilizing actuarial methodologies and various assumptions which include, but are not limited to, our historical loss experience and projected loss development factors. The required liability is also subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which we are ultimately liable and changes in the cost per incident. For the year ended December 31, 2024, we recorded an unprecedented adjustment to our self-insurance reserves for allocated loss adjustment expense. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.
The Consolidated Balance Sheets also include liabilities of $50 million and $49 million as of December 31, 2024 and 2023, respectively, related to workers' compensation, health and welfare and other employee benefit
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company is self-insured for public liability and property damage claims. The estimated reserve requirements for these claims are calculated on an undiscounted basis. Budget utilizes actuarial methodologies and various assumptions, including historical loss experience and projected loss development factors, to estimate these reserves. These reserves account for both reported claims not yet paid and claims incurred but not yet reported.
The FDD indicates that the liabilities associated with retained risks of liability to third parties were $451 million as of December 31, 2024, and $397 million as of December 31, 2023. These liabilities primarily relate to public liability and third-party property damage claims, as well as claims arising from the sale of ancillary insurance products. The liabilities related to workers' compensation, health and welfare, and other employee benefit programs were $50 million and $49 million as of December 31, 2024 and 2023, respectively, utilizing similar actuarial methodologies.
The required liability is subject to adjustment in the future based on changes in claims experience, including the number of incidents for which Budget is ultimately liable and changes in the cost per incident. For the year ended December 31, 2024, Budget recorded an unprecedented adjustment to its self-insurance reserves for allocated loss adjustment expense. These amounts are included within accounts payable and other current liabilities and other non-current liabilities.