There are different types of reserving methods for calculation of the liabilities of a General Insurance company. Some of the reserves are required to be stated directly like Unpaid reserves(due but not paid) while some are projected using Run off triangles using different methods.
Reserving Methods in General Insurance
There are different methods for loss reserving in general insurance.
- Chain Ladder Method
- Bornhuetter-Ferguson method
- Expected loss ratio method
- Average cost per claim or Frequency Severity method
Estimates of the outstanding claims reserves can be made on a case by case basis, by using statistical methods which will learn in upcoming exercises, or by using exposure-based reserving.
Statistical methods might be applied to various features of claims that appear stable (and are measurable), eg numbers or amounts.
On a comic sense, this is not how a method is selected!
Working for Reserving Methods
We already have gone through these steps but let’s revise them once and where we stand at.
- Compile claims data in a development triangle
- Calculate age-to-age factors
- Calculate averages of the age-to-age factors
- Select claim development factors
- Select tail factor
- Calculate cumulative claim development factors
- Project ultimate claims
Most of the statistical methods work from tabulations of claims that have been recently settled. Assumptions are made about the stability of claim development, and that past patterns will continue into the future.
Questions Related to Reserving Methods
Chain Ladder Method
Expected loss ratio method
Average cost per claim or Frequency Severity method