-8- the Bornheutter-Ferguson method4 to project ultimate values, by accident year, of each self-insurer fund; (ii) determined frequency and severity components; (iii) performed Monte Carlo simulations5 of the underlying net losses to obtain the potential liability of each self-insurer fund at various confidence levels; and (iv) compared simulation results to the policy retention points and claim payments. KPMG Peat Marwick estimated that Crossroads' reserves were $22,000,000 as of December 31, 1991, and $30,400,000 as of December 31, 1992. KPMG Peat Marwick's reserve estimates included losses for retroceded policies. b. Crossroads' Reserves for Unpaid Losses Crossroads' management established its reserves based on its analysis of the business environment and industry trends, claims experience, and the KPMG Peat Marwick actuarial reports. Crossroads recorded reserves in the amounts of $19,410,000 as of December 31, 1991, and $22,994,000 as of December 31, 1992, on its financial statements. These reserves were net of losses for retroceded policies. Crossroads' financial statements were 4 The Bornheutter-Ferguson method is an actuarial technique used to estimate the value of a company's reserves by subtracting its paid losses from its reserves. 5 Using the Monte Carlo simulation technique, KPMG Peat Marwick estimated Crossroads' potential liability by performing 500 simulations of Crossroads' underlying net ultimate losses for each fund year and sorting the results of the simulations from lowest to highest to estimate confidence levels.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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