There are two primary ways to estimate paid and reported loss development patterns based on Schedule P data for P&C insurance companies.
- The first way involves manually selecting development factors based on a review the historical data provided in Schedule P. Paid loss triangles are provided in Schedule P Part 3. Reported loss triangles can be calculated by taking the difference between the respective cells in Schedule P Part 2 and Schedule P Part 4.
- The second method involves calculating the respective paid and reported development patterns inherent in a company’s carried ultimate losses. These patterns, called implied development patterns, are not necessarily equal to a company’s selected patterns. Instead, the implied patterns are derived from the company’s carried ultimate loss. One benefit of this approach is that it does not require selections or judgment of any kind.
Implied development patterns can be compared to selected development patterns to generate many insights. I discuss this process, as well as numerous caveats and considerations in my Actuarial Fundamentals courses.
Feel free to download a free Excel spreadsheet to easily calculate your own implied paid and reported loss development patterns. This spreadsheet is designed to use data from Schedule P, Parts 2, 3, and 4. (See link below PDF.)