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the effect on reserve indication. Static analysis is the
precise and perfect knowledge of the future state of the
world, but an actuary can never predict such future rates
correctly. Instead, he then builds a dynamic reserve
indication, that varies with the inflation and the
unemployment rate change.
The actuary then presents a more meaningful but
complex distribution result. Generally, these casualty loss
reserves are of long duration, so are affected by external
factors. Casualty actuaries refer to this as ' inflation-
sensitive reserves. They are major management
concerns.
Dynamic analysis supplements static analysis, but does
not replace it. Static analysis remains the foundation of
loss reserving till date It shows the average of future
results and can be easily understood by all. Dynamic
analysis is the best estimate, but it tells us nothing about
the uncertainty in the reserve estimate. It fills in the rest
of the loss reserve story, giving us a better view of the
changes that the future may hold.
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