The Use of Simulation Techniques in Addressing Auto Warranty Pricing and Reserving Issues

Extended warranty contracts are generally quite difficult to evaluate because the factors affecting ultimate loss emergence tend to change quite considerably over time. The actuary is forced to extrapolate from historical data to take these changes into account whatever the methodology employed, and simulation techniques provide a powerful tool to model the changes in loss exposure in a way that is easy for the actuary and layman alike to grasp. Keywords: Reserving, Econometric Modeling, LOB-Warranty