CAS Loss Reserving and Ratemaking Fundamentals Flashcards
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What is the primary purpose of loss reserves in property-casualty insurance?
Answer: To represent the insurer's estimated obligation for unpaid claims
Loss reserves are a balance sheet liability representing the insurer's best estimate of future payments for claims that have already occurred.
What does IBNR stand for in actuarial reserving?
Answer: Incurred But Not Reported
IBNR (Incurred But Not Reported) reserves cover losses that have occurred but have not yet been reported to the insurer.
The chain-ladder loss development method organizes data using which structure?
Answer: Loss development triangles
The chain-ladder method arranges cumulative loss data in development triangles by accident year and development period to project losses to ultimate.
What is a loss development factor (LDF)?
Answer: A ratio used to project losses from one development period to the next
LDFs (age-to-age factors) are ratios derived from historical triangles that project cumulative losses from one evaluation period to a later period.
The Bornhuetter-Ferguson reserving method blends which two approaches?
Answer: The loss development method and the expected loss method
The Bornhuetter-Ferguson method combines the chain-ladder development method with the expected loss (a priori) method using credibility weighting.
What is the key difference between case reserves and IBNR reserves?
Answer: Case reserves are for known individual claims; IBNR covers unreported and development on reported claims
Case reserves are established by claims adjusters for specific known claims, while IBNR covers claims not yet reported and additional development on known claims.