CAS Tail Factor Working Party

Overview• Tony Phillips, FCAS Co-Chair• Steve Herman, FCAS Co-Chair

2004 CLRS, Las Vegas

Session 7: Research Working Party Kick-off

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Tail Factor Working Party - Overview

• Tail factors

– are widely used,

– have a huge impact on results, and

– there is minimal literature on the subject.

• Today for the first time in CAS history we have at this CLRS, multiple sessions dealing with the subject.

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Tail Factor Working Party - Overview

• Importance of Tail Factors

– Impact on Reserve Values and Pricing• Long tail lines with a small change in the tail factor can lead to a large

change in reserve dollars

• Generally not identified as important in pricing

– Impact on Financial and other aspects of a company• For example, a line of business in “Runoff“, the tail can determine

staffing needs

• Impact on “under-reserving” and financial failures

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Tail Factor Working Party - Overview

• Methods used to determine the tail factor– Fit to Curves (e.g. Inverse Power)

– Bondy Method

– Generalized Bondy Development (as developed by Al Weller)

– Select last age-to-age factor (development factor)

– New methods just identified in the

– Sherman/Diss paper

– Tail factor presentation today by Joe Boor and others

– Others

– What are the pros and cons of the varying methods

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Tail Factor Working Party - Overview

• The product for this Working Party will be a paper which will

– Survey existing literature

– Identify additional methods in use

– If needed, identify further areas that may need to be researched.

– Product may provide examples of results using identified methods on industry data.

• The purpose is both to educate students and to help practitioners. It may become part of the syllabus and/or be included in a reserving textbook.

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Tail Factor Working Party - Timetable

Task Time Frame

1. Recruit/select members September 2004

1a. Hold conference call with entire working party Early October 2004

2. Draft outline of paper October 2004 -November 2004

3. Identify existing literature October 2004 - December 2004

a. Assign WP members to write

summaries of methods in identified papers

4. Survey Practitioners October 2004 - December 2004

a. Have WP members survey their own

workplaces and colleagues for methods, write

summary

5. Time off for year-end, tie up loose ends January 2005 -February 2005

6. Compile input, identify gaps and write paper March 2005 - April 2005

7. Review paper, make revisions May 2005 - June 2005

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Tail Factor Working Party - Size of Working Party

• More then a casual commitment to the Working Party

– Members expected to do research

– Must consider timetable

• Viewing 15-20 members as being ideal.

– Large group could become harder to manage and less actionable unless enough people step up to lead sub groups

– Smaller group might not have enough resources for the task

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