Tag Archives: claims variability guidelines

A quantum leap in benchmarking P&C reserve ranges

Traditional development pattern benchmarks have provided some support in estimating fundamental liabilities, but even here, the process has long been a one-dimensional exercise, at least until now. A recently developed benchmarking tool, which includes percentiles at all stages of development, allows for the calibration of a benchmark that better resembles your portfolio. As such, this rigorously back-tested tool can provide actuaries an added level of confidence in the reasonableness of an entity’s reserve ranges. The next generation benchmarking tool, known as claim variability guidelines, is derived from extensive testing that involved all long-tail Schedule P lines of business and more than 30,000 data triangle sets. Milliman’s Mark Shapland provides perspective in this article.

A quantum leap in benchmarking P&C unpaid claim distributions

Much like the decisions about a central estimate, quantifying the uncertainty (i.e., determining a loss distribution) is prone to many of the same vulnerabilities of subjectivity and method/model error. The introduction of the claims variability guidelines is part of an evolutionary process that began with deterministic and statistical models aimed at understanding an insurance entity’s risk. The advent of substantial computing power allowed actuaries to move closer to a reasonable depiction of an entity’s risk with the development of sophisticated models that simulate millions of possible outcomes. From there, distributions of the possible outcomes can be used to identify a central estimate and to quantify worst case scenarios. Milliman’s Mark Shapland offers some perspective in this article.

A quantum leap in benchmarking P&C aggregate unpaid distributions

Confined by limited data, the aggregation process is typically riddled with volatility that can skew the view of an entity’s risk and capital needs. What has long been missing, at least until now, is a reliable benchmark for identifying and quantifying the risk dependencies between segments that underlie the loss aggregation process. Understanding risk dependencies between segments is a fundamental part of the process in forming conclusions about the interaction of loss distributions. With the introduction of new claims variability guidelines, actuaries can gauge the reasonableness of their correlations against benchmark correlations. Milliman’s Mark Shapland offers some perspective in this article.