Cumulative claim development factors (a.k.a. age-to-ultimate factors and claim development factors to ultimate) are calculated by successive multiplications beginning with the tail factor and the oldest age-to-age factor and projects the total growth over the remaining valuations. Cumulative CDFs are often greatest for the most recent AYs and the smallest for the oldest accident years. Actuaries refer to the most …
Methodology for GI Reserving
The methodology on how to calculate IBNR doesn’t only rely on the Method selected but how the selections of methods take place. You need to understand a few concepts before dwelling into reserving Methods like Chain Ladder, BF Method, and others. In this Section, we will explain you the process of calculation of IBNR Reserves in General Insurance rather than …
Terms to Understand
It contains the terms those are important to understand what exactly the reserves meant and which would make your life easy for the upcoming exercise. In case you are confident enough that you can leave them, feel free to ignore them completely 🙂
Short and Long Tailed
Somehow, Short-tailed and long-tailed suggest only if the claims are reported and settled quickly or are delayed. But these are used everywhere in General Insurance. Short and Long tailed is an important concept there is not an exercise in which we are not going to use it, consider pricing, reserving or even Asset Liability Management. Short Tailed Short tailed means …
Selecting Loss Development Factors
Selecting LDFs require some experience and a number of statistical analytics and model distributions can be used to select it for a particular LOB(Line of Business). Each LOB has different features like short tail or long tail, data available, market point of view, and others. Selecting Loss Development Factors (LDFs) To select DFs to be used for projecting claims for …
Expected Claims Method
The ELR method can also be used to set the loss reserve for particular business lines and policy periods. What Is the Expected Loss Ratio – ELR Method? Expected loss ratio (ELR) method is a technique used to determine the projected amount of claims, relative to earned premiums. The expected loss ratio (ELR) method is used when an insurer lacks the appropriate past …
Bornhuetter Ferguson Method
Bornhuetter-Ferguson (aka BF Method) combines features of the chain ladder and expected loss ratio methods and assigns weights for the percentage of losses paid and losses incurred What is Bornhuetter Ferguson Technique The Bornhuetter Ferguson technique (BF Method) is a method for calculating an estimate of an insurance company’s losses. The Bornhuetter Ferguson technique, also called the Bornhuetter Ferguson method (BF Method), estimates incurred but not yet reported (IBNR) losses for a policy year. …
Loss Development Factors LDFs
Loss development factors (a.k.a. LDFs or age-to-age factors and claim development factors ) are calculated by successive multiplications beginning with the tail factor and the oldest age-to-age factor and projects the total growth over the remaining valuations. Loss development factors are significantly relied upon in many actuarial loss reserving methodologies. They can be calculated entirely from loss triangle data– no …
Chain Ladder method CLM
The claims projections in this method is done using the past experience of how the claims have developed. The principle of this method is that historical loss development patterns (called development factor) are indicative of future loss development patterns. The chain ladder or development method (CLM) is a method used to calculate IBNR reserves as a part of claims reserves estimate by insurers for …