A System of Preparing Reserves on Workmen's Compensation Claims

The various methods which have been used or proposed for the calculation of workmen's compensation loss reserves have fallen under one or the other of the following headings or have been a combination of both. (1) An estimate of the probable cost of outstanding losses by individual estimates, or (2) that part of the expected loss payments which are unpaid at the date of valuation; that is, a certain percentage of the earned premium less the paid losses. The method of calculating the compensation loss reserves provided for in Schedule P of the convention form of annual statement is a combination of the two methods mentioned above. The actual outstanding losses are calculated for each year of issue. For the last three years of issue the reserve is calculated by taking 65% of the earned premium less losses and loss expense paid. The reserve actually set up for these last three years is either this reserve or the individual estimates of outstanding losses, whichever is the greater. The purpose of this paper is to describe the method of keeping individual estimates of outstanding compensation claims which is now being used by The Travelers Insurance Company.