ACT 320 · Year 3 · Semester 2 · 4 credits · Actuarial

Loss Reserving & Stochastic Reserving

From run-off triangles to predictive distributions: master the mechanics, diagnostics, and stochastic foundations of property-casualty loss reserving.

Full practice exam · 30 Q · 120 min

Season 1 · 8 episodes

The Solvency Threshold

When a sudden twenty-million-dollar reserve deficit threatens Cascade Specialty Insurance ahead of a state regulatory audit, newly appointed Chief Reserving Actuary Maya Lin must dissect distorted loss triangles, separate structural claims changes from true inflation, and deliver an unimpeachable reserve opinion before the board shuts the company down.

Protagonist · Maya Lin, FCAS, newly appointed Reserving Actuary at Cascade Specialty Insurance

Setting · Cascade Specialty Insurance headquarters in Chicago, Illinois; quarterly closing rooms, claims adjudication floors, and state insurance commission hearings

Stakes · A 24 million dollar capital deficit threatens Cascade with immediate regulatory supervision and ratings downgrade unless Maya can accurately isolate operational shifts from true reserve deterioration and establish a compliant reserve range under ASOP 43.

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Episodes

Season finale: Maya presents a rigorously defended ASOP 43 actuarial central estimate and stochastic reserve range to the Board of Directors and the State Insurance Commissioner, proving that an apparent reserve blowup was partially an operational distortion and securing both regulatory approval and a crucial reinsurance renewal.

From the lecturer: Welcome to ACT 320. Loss reserving is the financial bedrock of general insurance: balance-sheet solvency, ratemaking baselines, and insurer capital adequacy all hinge on accurately estimating unpaid claim liabilities. To extract maximum value from these lesson-films, treat them as active workshops rather than passive viewings. Reserving demands tactile numerical fluency paired with forensic diagnostic skepticism. Keep engineering paper, a financial calculator, and a computational environment (Python or R) open alongside every lecture. Whenever we advance through link-ratio derivations, execute Berquist–Sherman adjustments, or compute Mack's Mean Squared Error of Prediction, pause the film and perform the calculations independently before observing the worked reveal. This course directly aligns with the syllabus requirements of CAS Exam 5 (Basic Reserving), CAS Exam 7 (Stochastic Reserving), and SOA ASTAM (Advanced Short-Term Actuarial Mathematics). Crucially, you will bridge the gap between mathematical theory and professional practice under Actuarial Standard of Practice No. 43 (ASOP 43). Approach every development triangle as an evolving operational narrative: question the patterns, identify changing settlement speeds, and communicate reserve ranges with uncompromising actuarial rigour.

Cold open

Maya Lin walks into her new office at 7:15 AM to find a red-flagged statutory solvency report on her desk: Cascade Specialty's commercial auto liability line has posted three consecutive quarters of adverse development, and the Chief Financial Officer gives her five weeks before the state insurance department audit.

preparing lecture…

Transcript

Construct and interpret cumulative and incremental loss triangles across accident, development, and calendar dimensions
Calculate individual age-to-age development factors (link ratios) and aggregate estimators (volume-weighted and simple averages)
Project cumulative claims to the latest triangle evaluation age and quantify basic unpaid losses
Identify the structural assumptions and practical failure modes of the link-ratio method