Why Reserves Matter

Loss reserves represent an insurer's estimated liability for claims that have occurred but are not yet fully paid. They are typically the largest single item on an insurer's balance sheet and directly impact profitability, surplus, and regulatory standing. Under-reserving flatters current results but creates future pain; over-reserving depresses results and may trigger unnecessary rate increases.

Multiple Method Analysis

Running Standard Methods ` I need to estimate ultimate losses for our general liability book. Here is the loss development data: [paste triangles for paid and incurred] Here is the premium data by accident year: [paste]

Run these standard actuarial methods: 1. PAID CHAIN-LADDER: Using paid loss development factors 2. INCURRED CHAIN-LADDER: Using incurred (paid + case reserves) factors 3. BORNHUETTER-FERGUSON (PAID): Using an a priori expected loss ratio of [X]% and paid development factors 4. BORNHUETTER-FERGUSON (INCURRED): Using incurred factors 5. EXPECTED LOSS RATIO: Using industry expected loss ratio adjusted for our rate changes and trend