ASTIN Masterclass: The Art and Science of Actuarial Loss Reserving — From Then to Now by Greg Taylor
The Art and Science of Actuarial Loss Reserving — From Then to Now by Greg Taylor
One of the largest items on an insurance company’s balance sheet, often the largest, is the loss reserve, the liability for future claim costs for which the company is already obligated. It isn’t possible to operate a risk business without a thorough understanding of its liabilities. Modern insurance businesses rely on reserve models to:
- establish bottom-line profit for each accounting period;
- price new business effectively;
- report to relevant statutory authorities;
- understand the risk associated with the estimates of liability; and
- manage the capital commitment to the business of its owners.
Loss reserving methodology has evolved over 50 years or so, from models of a strictly heuristic nature in the early years to properly formulated stochastic models more recently, and has evolved further in the very recent past into machine learning models. Loss reserving is often viewed as a necessary evil, divorced from the excitement of the marketplace, and dull in nature. Greg Taylor shows you that the statistical processes underlying it, and the associated modelling challenges, can lead you down stimulating by-ways.
His court-room experience, and other experience involving contesting parties, has taught him a wariness of heuristic methods. Rigorous statistical models, linked as far as possible to real-world processes, provide greater reliability. An overly simple loss reserving model might be perfectly respectable under some circumstances, but fail miserably under others, for example:
- changing rate of claim pay-out;
- change in Governing legislation; and/or
- varying inflation of claim costs.
In this masterclass, Greg traces the history of actuarial loss reserving and reserve risk management from its crude beginnings to the much more sophisticated present, looking at methodological developments and the reasons for them. If you wish to understand these developments, and learn of models that address complex reserving situations, then you need to watch this masterclass. Greg offers solid theoretical background, relevant case studies and practical tips for anybody grappling with ways to support reliable analysis of claim data.
Episodes:
- Insurance technical reserves: what and why? (14:21)
- Actuarial beginnings (19:58)
- Putting stock in stochastic (17:33)
- But aren’t all forecasts wrong? (10:51)
- Why do your estimates use only half the available data? (11:17)
- So, you've made a whole bunch of forecasts. Now what? (8:45)
- Down and dirty with individual claims (10:22)
- Rise of the machines (16:42)
About the Lecturer: Greg Taylor is an Adjunct Professor in the School of Risk and Actuarial Studies at University of New South Wales (Sydney, Australia). Greg Taylor was a founding director of Taylor Fry Consulting Actuaries, where he acted as a consultant for 15 years. Prior to the foundation of that company in 1999, he worked as an actuary in the finance and insurance industry for 30 years, and a further 8 years as an academic. He is an Officer of the Order of Australia, and recipient of one of the only two Gold Medals ever awarded by the Actuaries Institute of Australia. He also holds the Finlaison Medal (Silver Medal) of the UK Institute and Faculty of Actuaries. He specializes in the theory of Insurance Loss Reserving, and has authored two books, and co-authored a third, on the subject. One has been translated into Japanese. He has lectured and held research positions in many academic and industry institutions in Europe and the North America.
Click here to access the Masterclass Reference List.