Two Approaches to Calculating Correlated Reserve Indications Across Multiple Lines of Business

When focusing on reserve ranges rather than point estimates, the approach to developing ranges across multiple lines becomes relevant. Instead of being able to simply sum across the lines, we must consider the effects of correlations between the lines. This paper presents two approaches to developing such aggregate reserve indications. Both approaches rely on a simulation model. One takes into account the actuary’s judgment as to the correlations between the different underlying blocks of business, and the second uses bootstrapping to eliminate the need for the actuary to make judgment calls about the nature of the correlations.