Funny Story About Selecting LDFs

My first job as an actuary in 1995 was as a summer intern at an auto insurer in Winston-Salem, NC. It used to be called Integon Insurance, but it changed names a few times over the years and now I think it's called National General Insurance. I started in the pricing department but at the end of the summer they hired me full-time and I transferred to reserving.

Anyway, one of tasks in reserving was assisting the chief actuary in making LDF selections. We had data by accident quarter and development quarter so our triangles were huge. We were active in roughly 20 states at the time and our standard auto policy had I think 7 coverages. That's 140 huge triangles of LDFs where we had to make selections.

Our procedure was that I would make the first pass at selecting LDFs and this would take me a couple of weeks of early mornings and late nights. I would analyze the various triangles (paid loss, reported loss, paid counts, reported counts, ALAE, salvage & subtgrogation) to try to understand what was going on. Was there a catastrophe, tort reform, adverse selection from a change in risk classification? Do I need to talk with product managers? It went on and on. And then how should I incorporate all of this information into make sensible LDF selections. To do this for a small number of triangles could be an interesting project, but with amount of data we had, it was overwhelming.

When this was done, I'd pass it along to the chief actuary. In those days, it was a couple of thick binders of print-outs. For the next week or so, I would see him in his office thumbing through the pages, smoking, marking it up with a red pen. (Yes, smoking was still allowed in offices North Carolina back in the 1990s). Then he'd hand it back to me and I'd type the changes into Lotus 123. (That's another throwback to the 1990s, an old spreadsheet program that doesn't exist anymore.)