Best estimate reserves and the claims development results in consecutive calendar years

Annina Saluz and Alois Gisler

Annals of Actuarial Science, 2014, vol. 8, issue 2, 351-373

Abstract: The claims development result (CDR) is the difference between the best estimate predictions of the ultimate claim in 2 successive years. With best estimate reserves it is often argued that CDR’s in consecutive years should fluctuate randomly around zero. However, in practice one frequently observes that CDR’s in a given line of business have the same sign over several consecutive years. We show that this is a phenomenon which is not unusual and to be expected in situations of change. Moreover, we show how situations of change can adequately be described by a model, taking into account the evolving external information.

Date: 2014
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