🧮 Loss Development & Reserving Basics
Reserving ensures insurers hold enough money today to pay claims that will be reported and settled in the future. Loss development techniques help actuaries estimate these future obligations.
📘 Why This Matters
Insurance claims often take years to fully emerge and settle. Reserving is the process of estimating the ultimate cost of those claims. Accurate reserves are essential for financial reporting, solvency, and pricing.
📈 What Is Loss Development?
Loss development measures how claims grow over time as more information becomes available.
- Reported losses — claims reported to date
- Paid losses — amounts actually paid
- IBNR — incurred but not reported
🔺 Loss Development Triangles
Triangles organize historical claims data by accident year and development period.
They help actuaries identify patterns in how claims mature.
🧠Common Reserving Methods
- Chain Ladder — projects future development based on historical patterns
- Bornhuetter–Ferguson — blends expected loss with actual emergence
- Expected Loss Method — uses exposure and expected loss ratios
