Statistical and Financial Aspects of Self-Insurance Funding

Actuaries are well aware that good rate making and reserving involves the estimation not only of expected values, but also of variances. Moreover, they frequently are concerned with the present value of their estimates. These two matters, the statistical matter of estimation and the financial matter of present value, are especially important when actuaries evaluate self-insurance funds for workers’ compensation. This paper will demonstrate the usefulness of constrained least-squares estimation for these actuarial evaluations, and will pose some questions of general relevance to actuarial science. Other key words: funding studies, financial analysis, reserve discounting.