The Four Non-life Reserving Methods you need to master throughout your actuarial career

How to choose the right reserving method?

Reserving is one of the three core functions of an actuary in an insurance company, along with pricing and capital modelling.

The reserving actuary’s role is key, and is one of the most scrutinized functions as well! This leads us to the million-dollar question: just how do we get those numbers right?

In this e-Book, we focus on selecting the right reserving method, among four mains universally known and used methods around the actuarial world:

• Chain-Ladder
• Bornhuetter-Ferguson
• Average Cost
• De Vylder method

Download the e-book and know when to use which actuarial reserving method at the right time! 🚀

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Four universally known and used reserving methods

Insurers, do you consistently ask yourself: How do I know that the reserving methods I am currently using are the “best”? How do I decide when to change methods? Access our e-book to uncover the answers of your questions and learn about the four universally known and used reserving methods in the actuarial world that you should master:

Chain Ladder:

The Chain-Ladder Method is the most widely used reserving technique in Property & Casualty (P&C) insurance, applicable to claims, premiums, and commissions data. It leverages historical experience to predict future outcomes, making it versatile and valuable in various contexts and it's highly effective in estimating reserves by analyzing past data patterns, making it indispensable for actuaries.

Bornhuetter-Ferguson:

This method is developed for riskier and more volatile lines like financial insurance or Directors and Officers (D&O) insurance, where the Chain-Ladder method might yield inconsistent results. It combines historical data with expected loss ratios to reduce volatility and provides stable and reliable reserve estimates, especially for recent and unpredictable periods.

Average Cost:

It estimates ultimate claims by multiplying the ultimate claims numbers matrix by the ultimate average costs matrix, explicitly accounting for claims inflation. This method utilizes a frequency x severity approach to identify trends in claims inflation in high-frequency claims with rising costs year over year.

De Vylder:

Developed by F.E. de Vylder for reserving when origin periods are unknown, or data is sparse and unreliable. This method offers a solution for estimating reserves in complex scenarios with incomplete data. It enhances accuracy in uncertain or data-poor environments, providing a critical tool for challenging datasets.

Download our e-book to unlock our experts' insights and guidelines for choosing the right method at the right time!

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