Practical LDF Interpolation for Well-Behaved IBNR

Actuaries have devised numerous methods for interpolating annual evaluation loss development factors (LDF) to arrive at quarterly evaluation factors. Not all of these work as well as might be hoped. Some introduce oscillations not found in the original factors. Many lead to IBNR projections that move erratically or have blips that are hard to explain. This paper advances the approach to interpolation by taking a whole curve perspective, defining properties of well-behaved interpolates, and focusing on attributes of the resulting IBNR projections. It demonstrates a set of simple practical techniques including a backfill algorithm to compute factors at immature ages.

Keywords: Loss Development Patterns, Interpolation, Equilibrium, IBNR