Loss Distributions

Loss distributions are currently used by loss reserve analysts in special situations to estimate loss reserves. An example of a special situation is excess or catastrophe losses, where data is frequently sparse and traditional techniques are difficult to apply. This session will discuss various models that have been used to analyze proper and casualty insurance data. The session will focus primarily on the pareto and lognormal distributions. Estimation of parameters using data commonly available to actuaries will be presented. Although procedures for parameter estimation usually require specialized software, techniques will be presented which can be implemented on a spreadsheet. Techniques that require individual claim information, as well as, techniques that use aggregate data will be discussed. The shortcomings of the distribution, such as goodness-of-fit of the tail, will be discussed. Application of the distributions to practical reserving situations including the evaluation of excess loss reserves and exposure based reserve estimation will be illustrated.