A Method of Testing Loss Reserves

Ever since workman's compensation laws were first enacted in this country casualty actuaries have been searching for a formula which will correctly compute the ultimate loss to be incurred under both compensation and liability policies. Thus far no one has derived a satisfactory formula. In the meantime claim men have been patiently setting up reserves on each claim in accordance with the merits of the case as disclosed by the claim file. Some of these estimates have been wide of the mark but most of them have been fairly close. In the aggregate results for all companies combined have not been all that could be desired, as outstanding losses have been underestimated. This paper is presented in the hope that it may prove helpful to some of the members of the Society by suggesting a practical method of keeping a control over compensation and liability loss reserves.