[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Actual vs Expected Analysis** ## Definition ==Actual vs Expected Analysis== is a diagnostic technique comparing actual loss emergence to expected patterns to identify reserve strengthening/weakening and development trends. ## Methodology ``` A/E Ratio = Actual Incurred / Expected Incurred Calculation: Expected = Prior Ultimate Estimate Actual = Current Incurred A/E > 1.0: Adverse development A/E < 1.0: Favorable development A/E = 1.0: As expected ``` ## Uses - Monitor reserve adequacy - Identify development trends - Validate methods - Track actual vs projected ## Example ``` AY 2022 @ 12/31/2023: Prior estimate (12/31/2022): $1,000,000 Current incurred (12/31/2023): $1,050,000 A/E = $1,050,000 / $1,000,000 = 1.05 or 105% 5% adverse development ``` ## Related Concepts - [[Reserve Adequacy#Definition]] - [[Roll Forward Analysis#Definition]] ## References - Friedland, Chapter 11