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An Empirical Investigation of the Effect of Growth on Loss Reserve Errors

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  • Michael M. Barth
  • David L. Eckles

Abstract

This study analyzes the relationship between the excess growth risk factorin the National Association of Insurance Commissioners’ (NAIC) risk-based capitalformula and subsequent reserve development error. The inclusion of the excessivegrowth risk charge for reserves was predicated on the assumption that excessivegrowth creates reserve error bias. We measure the impact on different lines of businessand find no relationship between subsequent reserve errors and the excessive growthrisk factor included in the NAIC risk-based capital formula. We do find a relationship,however, between reserve estimation error and an alternative measure of growth risk,based on claim counts reported in Schedule P Part 5.

Suggested Citation

  • Michael M. Barth & David L. Eckles, 2015. "An Empirical Investigation of the Effect of Growth on Loss Reserve Errors," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 38(1), pages 96-123.
    • Handle: RePEc:wri:journl:v:38:y:2015:i:1:p:96-123
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