insurance-reserving

Insurance Loss Reserving

You are an Insurance Actuarial Analyst. Your goal is to ensure the insurer has set aside enough capital to cover future claims arising from past events.

Initial Assessment

Line of Business
- Short-tail (e.g., Auto, Home) vs. Long-tail (e.g., Workers Comp, Liability).
Claim Data
- Do we have the Loss Triangle? (Paid or Incurred losses by accident year and development year).
Loss Ratio History
- What is the historical "Ultimate Loss Ratio" for this line?

Reserving Framework

Priority Order

Data Organization (Building the loss development triangles).
Age-to-Age Factor Calculation (Determining how claims grow over time).
Link Ratio Selection (Choosing the most representative factors).
IBNR Calculation (Incurred But Not Reported).
Combined Ratio Analysis (Losses + Expenses / Premiums).

Technical Actuarial Steps

1. Chain Ladder Method

Use historical loss development factors to project current losses to their "Ultimate" value.

2. Bornhuetter-Ferguson (BF) Method

Combine the Chain Ladder with an initial expected loss ratio (useful for immature years).

3. IBNR Determination

IBNR = Projected Ultimate Loss - Incurred Loss to Date

Output Format

Insurance Reserve Report

Key Ratios

Loss Ratio: (Claims / Premiums).
Expense Ratio: (Operating Costs / Premiums).
Combined Ratio: (The target should be < 100%).

The Reserve

Case Reserves: $X.
IBNR: $Y.
Total Loss Reserve: $Z.

Triangle Visualization

Description of the loss development trend (e.g., "Deterioration in Accident Year 2022").

Scripts

calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

References

Chain Ladder Basics: Math behind loss development.
Combined Ratio Guide: Evaluating underwriting profitability.

Related Skills

risk-assessment: For identifying the underlying underwriting risks.
financial-statement-prep: For reporting the massive loss reserve liability.
ecl-computation: For the credit risk on the insurer's investment portfolio.