Predicting future losses: an introduction to actuarial reserving methods

Abstract

Actuaries perform many roles within an insurance company. While perhaps the most notable is their work on pricing, another key responsibility is predicting future total losses. Given limited data and experience, they must be able to make estimations regarding the future costs of claims that have occurred in order for the company to keep accurate reserves. They perform this task using a multitude of actuarial models. In this paper, I will provide a brief introduction to a few of these models- namely the Loss Development, Frequency-Severity, Bornhuetter-Ferguson, and Cape Cod techniques- along with exhibits pulled from the work I performed during my internship this past summer.