For Budget, what methods are used to calculate the estimated reserve requirements for public liability and property damage claims?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is self-insured for public liability and property damage claims. These self-insurance reserves 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 calculated on an undiscounted basis using actuarial methods and various assumptions which include, but are not limited to, historical loss experience and projected loss development factors. The required liability is subject to adjustment in the future based upon changes in claims experience, including changes in the number of incidents for which the Company is ultimately liable and changes in the cost per incident.
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 using actuarial methods. These methods incorporate various assumptions, including historical loss experience and projected loss development factors. These reserves account for both reported claims not yet paid and claims incurred but not yet reported.
The FDD indicates that the required liability is subject to future adjustments based on changes in claims experience. These changes can include fluctuations in the number of incidents for which Budget is ultimately liable and variations in the cost per incident. As of December 31, 2024, Budget had $451 million in liabilities associated with retained risks, and $397 million as of December 31, 2023. These liabilities primarily relate to public liability and third-party property damage claims.
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. Additionally, the Consolidated Balance Sheets 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 programs, utilizing actuarial methodologies similar to those described above.