L. J. Halliwell, LLC
Casualty Actuarial and Financial-Risk Consulting
WorkComp Model

We've developed a model that repeatedly simulates Workers' Compensation ground-up loss+ALAE.  Primarily, it derives severity distributions from ELF factors by state, hazard group, and injury type, whether NCCI's, independent bureaus', or your own.  Here is a sample printout of how it looks and works: WC_Xs_Model Sample.


The first two pages are standard input fields .  The model has an Excel front end, but the Monte-Carlo simulation is done via OLE in a matrix language called J (www.jsoftware.com).  J is an actuary's dream tool, and even apart from this model, every actuarial shop should have it, especially since it's freeware.


We set the model for 1,000 simulations of a year of business, and it simulates all the Fatal, PT, PP, TT, and Med claims –  in this run they were approx 630,000.  It then gives each claim an appropriate (ground-up) payout pattern, considering the rank-correlation between larger severities and longer payout.  Hence, individual payout streams are simulated, not just ultimate amounts.  Then the model forms occurrence patterns (see the parameter on the first page that 1 occurrence equals 1.03 claims), layers them, and tabulates.  It gives summary statistics and CDF graphs (3 pages and 1 page) in both nominal and present-value terms.  And you can download back to Excel the iteration results (pages 11 and 12, only the first 20 iterations shown, 50-year payout patterns).  With these results you can price features like stop-loss or aggregate limits and sunset provisions.  So actually, its a "pre-pricing" model; you use your pricing techniques on its statistical output.  Our nine-year-old Dell Pentium P/C is no powerhouse; yet it performed this work in about five seconds.

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