Is it common practice in market after calculate Best Estimate of the total IBNR reserve, one would assume the total IBNR reserve comes from a distribution and create a monte carlo simulation to calculate the CTE, or other key statistics ?
Forgive me, I have a headache from years of banging my head against a wall.
What is CTE?
There are well known techniques for estimate the distribution (or confidence intervals) on reserve estimates.
Examples:
I am really sorry, should’ve been more clear. CTE is Conditional Tail Expectation or Expected Shortfall or Tail Conditional Expectation. Yes, the papers that you give me answer my question. But I wonder whether this approach is common in market practice ?
Every company will have their own practice.
It may vary by line of business.
It may vary over time.
It may vary over the underwriting cycle.
It is my opinion that you cannot make a very good estimate of the tail factor without a triangle that is long enough to encompass all the development. You may have a really good triangle out to 60 months, but the data in that triangle is not reliable for estimating anything that is going to happen after 60 months.
May depend on the market. I’ve seen where things done in the US aren’t done in the UK/Europe. But in both cases, actuarial credentialling will impart to the student a sort of “market standard” that is used as a baseline for what a specific company will use for their internal operations and decision making.
That is, the Chain Ladder and BF methods are used for external reporting because they can often be “calibrated” in such a way to support a decision based on something completely different (e.g., use of a GLM).
You might consider at least pursuing some formal training by sitting for an Exam–if not seeking the credential–of the Casualty Actuarial Society (P&C focused in the US) or its equivalent in the UK.
Here are a few links that you can at least get material to learn from (most is free):
CAS Exam 5 - Basic Ratemaking & Reserving
CAS Exam 7 “Advanced Reserving”
CAS Exam 8 - Advanced Ratemaking
Note that Exam 5 might be the best starting point since the other two assume its material is well known.
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The text books for exam 5 are freely available to download. You might want to read them.
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IIRC, some of the CAS Monographs are also part of the syllabus for the other two; and these are also free.
But the syllabus also provides additional references that the OP can consider and purchase if it’s deemed to be useful for their purpose.
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Interesting set of sentences there!!
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Pun was intended, as to me CTE is Cumulative Traumatic Encephalopathy and I would use the words “tail factor” and not “Conditional Tail Expectation.”
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