Measurement of Reserve Variability

Actuaries and others have long been trying to quantify the uncertainty in reserve estimates. Attempts to address this question have led to the development of stochastic reserving methods as well as the framing of some traditional reserving methods in a stochastic setting. Stochastic methods give insight into the volatility of the forecasts or parameters for a single model and do no necessarily provide an estimate of the distribution of reserves. This paper looks at various sources of uncertainty in projections and trieds to give the reader a framework in which to view different attempts to measure the distribution of reserves. Finally the author presents an approach that attempts to at least recognize the issue of model uncertainty and to see its influence on the measurement of reserve uncertainty.