A Method for Setting Retro Reserves [Discussion]

All actuaries, I believe, would agree that a reserve formula of any kind which eliminates the need for actuarial judgment will never be devised. The author of this paper, I am quite sure, would be the first to agree. Nevertheless, this does not stop actuaries from developing formulae and procedures to help us with our work. This is because a formula helps us to organize our thoughts and exercise our judgment in an orderly manner. The procedures and formulae in this paper are no exception. Before I attempt to make some constructive comments on the paper, I want to emphasize that I think the paper is a valuable addition to our literature. The method proposed for setting a reserve for retrospective rating adjustments is theoretically sound, easy to understand and apply, and very practical. It is a significant improvement over the method described in an earlier CAS paper. The remainder of this review will begin by raising some rather theoretical questions and then turn to some practical comments on the use and construction of the DRI and DR2 formulae contained in the paper.