Exam 7: Residuals help diagnose a stochastic development model
Residuals can reveal patterns left unexplained by a fitted model. Look across origin, development and calendar periods. A pattern is a diagnostic prompt; it should lead to a data or assumption investigation rather than an automatic model adjustment.
Worked example or practice scenario
Positive residuals concentrated along a recent calendar diagonal might suggest inflation or operational change. A development-age pattern might indicate that the selected mean or variance structure fits some maturities poorly. Neither interpretation is established by the plot alone.
Try this next
State a competing explanation and a check that could distinguish it. Compare claim counts, average size and case reserves where relevant. Document whether extreme observations are legitimate losses or data errors before altering a fit.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.