When assessing the self-insurance reserves for Budget, did the actuarial specialists develop an independent estimate of these reserves?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Our audit procedures related to United States public liability and property damage self-insurance reserves included the following, among others:
• We tested the effectiveness of controls over management's review of significant assumptions, key inputs and methods used to calculate the estimate of the reported claims not yet paid and claims incurred but not yet reported.
- We tested the underlying data that served as the basis for the Company's actuarial analysis, including historical claims, to test the reasonableness of the inputs to the actuarial estimate.
- With the assistance of our actuarial specialists, we developed an independent estimate of the selfinsurance reserves, including assessment of loss data and claim development factors, and compared our estimate to management's estimate. In addition, we performed the following:
- Evaluated the reasonableness of the methodologies used in management's estimate based on actuarial methods followed in the insurance industry associated with such liabilities.
- Evaluated the reasonableness of the assumptions used in management's estimate by comparing prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of these liabilities.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, when auditing the company's self-insurance reserves for public liability and property damage claims, actuarial specialists were involved in developing an independent estimate. This estimate was then compared to the estimate provided by Budget's management. The self-insurance reserves represent an estimate for reported claims not yet paid and claims incurred but not yet reported.
The actuarial specialists' independent estimate involved assessing loss data and claim development factors. They also evaluated the reasonableness of the methodologies used in management's estimate, basing their assessment on actuarial methods commonly followed in the insurance industry for such liabilities. Furthermore, they scrutinized the assumptions used by management by comparing prior-year assumptions of expected development and ultimate loss to actual losses incurred during the current year. This comparison aimed to identify any potential bias in determining these liabilities.
This process is crucial for ensuring the accuracy and reliability of Budget's financial statements, particularly concerning self-insurance reserves. For a prospective franchisee, this indicates that Budget's financial reporting is subject to rigorous scrutiny and independent verification, which can provide a degree of confidence in the company's financial health and stability. The involvement of actuarial specialists helps to mitigate the risk of underestimation of liabilities, which could have adverse financial consequences for the company and its franchisees.