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Modeling (Methodologies (Issue Age Modeling (Fit is the key determinant of…
Modeling
Methodologies
Issue Age Modeling
Fit is the key determinant of accuracy
Premium modeling
Usually inappropriate, use with extreme caution
Policy Size modeling
Issue Day modeling
Issue Month
Issue Year
Introduce large amounts of errors
Combined Modeling
Plan modeling (Plancode)
Validations
Static Validations
~balance sheet review
run model as of start date;
compare if ratio of actual vs modeled is ~1
Dynamic Validations
~income statement review
Two ways
Prospective
compare actual historical trend with projected
Retrospective
start with current portfolio and run model backwards through time
Costs
Known Error => can be calculated
Static Validation & Dynamic Validation
Quantify "Average known error"
Premium error
Reserve error
Unknown Error
No data to validate against
Quantify "Avg unknown error"
Benefits
Save time and labor cost