A Method for Setting Retro Reserves

In a paper presented to the Casualty Actuarial Society in 1965, W. J. Fitzgibbon, Jr. explained a method of setting reserves for retrospective premium adjustments. His method is based on the fact that, in general, a group of policies with a low loss ratio will produce a greater retrospective return premium than a group of policies with a high loss ratio. In practice, unfortunately, this relationship is not perfect. For older groups of policies the actual retrospective adjustments which have already been made provide additional evidence about what the ultimate adjustment will be. This paper describes a systematic method of using this additional information to refine the Fitzgibbon indication and set a more accurate reserve.