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Best estimate reserves and the claims development results in consecutive calendar years

Published online by Cambridge University Press:  26 August 2014

Annina Saluz*
Affiliation:
Department of Mathematics, 8092 Zurich, Switzerland
Alois Gisler
Affiliation:
Department of Mathematics, 8092 Zurich, Switzerland
*
*Correspondence to: Annina Saluz, ETH Zurich, RiskLab, Department of Mathematics, 8092 Zurich, Switzerland. Tel: +41 44 632 68 30. Fax: +41 44 632 15 23. E-mail: annina.saluz@math.ethz.ch

Abstract

The claims development result (CDR) is the difference between the best estimate predictions of the ultimate claim in 2 successive years. With best estimate reserves it is often argued that CDR’s in consecutive years should fluctuate randomly around zero. However, in practice one frequently observes that CDR’s in a given line of business have the same sign over several consecutive years. We show that this is a phenomenon which is not unusual and to be expected in situations of change. Moreover, we show how situations of change can adequately be described by a model, taking into account the evolving external information.

Type
Papers
Copyright
© Institute and Faculty of Actuaries 2014 

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