CLRS To Feature New Reserving Papers

by Thomas A. Ryan, Chairman, CAS Committee on Reserves 2003 Call Paper Program

It is a time of dramatic change and challenge for the property/casualty insurance industry, the actuarial profession, and the reserving process within our profession. In order to assist actuaries in meeting these challenges, the CAS Committee on Reserves, via its 2003 Call Paper Program, sought papers on several relevant topics. Determining and explaining ranges of reserves, Statement of Opinion issues, reserving for unique exposures, and new or improved reserving techniques were all addressed.
The committee accepted ten exceptional papers that will be presented by the authors at the 2003 Casualty Loss Reserve Seminar in Chicago on September 8-9. At the Seminar's opening session, those papers that the assembled prize committee judged to contribute most to the current CAS literature on reserving will be recognized. A brief summary of each paper follows (but authors are not listed since the objective evaluation of the prize committee is still occurring as this is written).

Many of the papers address reserve ranges—a critical element in most reserve analyses. One paper discusses the concept of a range of reasonable estimates, describes methods for determining ranges, and demonstrates a basis for the aggregation of ranges from individual lines of business (or other subdivisions). Another paper describes, in statistical terms, the distribution of loss reserves and how to estimate that distribution.

While we often discuss a range of "reasonable" reserves, the concept of reasonableness may often be misunderstood. One paper reviews some current actuarial practices and examines how they relate to the question of what is "reasonable" from a statistical perspective. Another paper provides a probabilistic framework for evaluating materiality and variability in loss reserve estimates. The authors present a new function, called the coefficient of estimation, as a measure of the placement of a reserve point estimate on the continuum of reserve estimates defined by the underlying aggregate loss distributions.

A fifth paper presents an application of Maximum Likelihood Estimation (MLE) theory that demonstrates modeling the distribution of loss development based on data available in the common triangle format. This model is used to estimate future loss emergence and the variability around that estimate. Another paper offers a generic claims reserving model with a brief analysis of the statistical basis for the chain ladder method and its implied limitations.

Regarding new or unique exposures, there are papers that discuss reserving for financial guaranty insurance and uncollectible reinsurance. The financial guaranty paper presents a primer in basic risk principles and business models of this line along with a practical approach to reserving. A statistical simulation approach for estimating the reserve for uncollectible reinsurance is provided in another paper. This approach considers the risks of a company's reinsurers and the potential for correlations between reinsurer failures within a given period as well as over time.

The final two papers address new approaches to familiar liabilities—unallocated loss adjustment expense (ULAE) and asbestos liabilities. The ULAE paper describes a generalization of a familiar ULAE liability estimation approach and then attempts to duplicate some of the benefits of structural ULAE estimation methods while relying exclusively on aggregate loss data. The final paper seeks to provide the necessary framework to perform a rigorous analysis of asbestos liabilities, acknowledging there is no valuation algorithm that guarantees success.