Loss Reserve Upgrades - A Pervasive Myth

Major misconceptions about the loss reserving process are widespread. We debunk a critical loss reserving myth involving loss reserve upgrades that is pervasive in the insurance industry.

The powerpoint presentation is available archive here (275 KB) , alternatively, an online discussion can be found here.

7 Reasons to ditch link ratios

Link ratios cannot measure calendar year social inflation

  • The assumptions are rarely met by the data
  • No insight into trends in the business
  • Too slow to review
  • No connection to the risk characteristics of the data
  • No early warning system
  • No way to determine whether an answer is good, bad, or ugly

Graphical Representation

Thomas Mack identified the stochastic regression model that underlies volume weighted average link ratios. Other authors, including Murphy and Venter, have developed these ideas further. A graphical representation and regression formulation of link ratios makes it clear what assumptions underpin the methods and extensions thereof.

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