Probabilistic Development Factor Models with Applications to Loss Reserve Variability, Prediction Intervals and Risk Based Capital

This paper aims to present a statistical modeling framework and environment for conducting loss reserving analysis. The modeling framework and approach affords numerous advantages including increased accuracy of estimates and modeling of loss reserve variability. Since the loss reserve is likely to be the largest item in the insurer’s balance sheet and is subject to much uncertainty, modeling of loss reserve variability is an integral component of assessing insurer solvency and assessment of risk based capital.