How to generate reserve from simulated claim transactions (Crystal Ball)


For actuaries, you can think of the crystal ball this way.   

You can summarize the claim transactions into an incremental paid development rectangle by accident year (or quarter, etc) by development period (year, quarter, etc) such that you show enough development periods that ALL of the claims are completely settled.  You can then split this rectangle into two triangles -- the first (upper left) is a typical loss development triangle with information as of a certain evaluation date, and the second triangle (lower right) is the rest of the development to ultimate for those claims after the evaluation date.  At the evaluation date, the second triangle is the crystal ball for what will happen for those claims (for that one iteration of the model).