Anatomy of an Error: The Case of Loss Reserve Development Error Research

The academic literature on loss reserve errors spans five decades and follows two general themes: accident year reserve errors and calendar year reserve errors. The error metrics have different purposes, and in some research one method may be more appropriate than the other. In recent years, a material error has crept into the academic literature concerning the definition and measurement of loss reserve errors, and that error has found its way into peer-reviewed articles, into working papers found online, and in conference presentations. Our primary goal in this paper is to present a history of the two reserve error metrics and to correct the evolving error before it becomes too deeply embedded into the literature.