Evolution of Loss Reserve Risk

Submitted on 29th July 2015

While multiple standard actuarial methods exist for evaluating the adequacy of reserves, little information exists on how deficiencies evolve over time. No risk models currently exist to make statements regarding the probability of a level of deficiency over a fixed time horizon. For example, the probability that current reserves will become 20 percent deficient over the next two
years is difficult to determine. Current models only make estimates over the lifetime of liability or run-off period.

This paper illustrates a model of loss reserve risk that will incorporate how risk evolves over time at annual time horizons. The paper will illustrate how to build and parameterize the model using multiple years of financial statement data. The model produces results for a sample line of business for time horizons from one to 10 years.

Source
Society of Actuaries
Length of Resource
25 pages
Resource File
Author
Thomas Conway, ACAS, MAAA
Mark McCluskey
Date Published
Publication Type
paper
Resource Type
commercial