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SA3 Acted ASET Solutions - October 2012 Q1vi

E

ed220489

Member
The last sentence of paragraph 3 claims that paid development ratios will be higher for early development periods for 2010/11 due to faster claims handling. I thought that faster claims handling would lead to more paid claims in earlier development periods, leading to lower development factors?


Simple example using cumulative paids:


10 15 18 19 20 (Original claims handling) eg. Df 1->2 =1.5


13 18 20 20 20 (New claims handling (getting to ultimate faster)) eg. Df. 1->2 = 1.38


Am I being silly?
 
I wouldn't say that's silly. I just think you're confused by the profiles you've chosen, because so much of your development occurs in your first year.

Take a look at the attached. The development factors for the short-tail class will be higher until about time t (because the gradient is steeper), but lower after time t (where the gradient is more shallow).

It's always difficult to "fabricate" a profile to fit a theory. Better to compare some real classes from work.
 

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Katherine Young said:
I wouldn't say that's silly. I just think you're confused by the profiles you've chosen, because so much of your development occurs in your first year.

Take a look at the attached. The development factors for the short-tail class will be higher until about time t (because the gradient is steeper), but lower after time t (where the gradient is more shallow).

It's always difficult to "fabricate" a profile to fit a theory. Better to compare some real classes from work.
Click to expand...
If the gradient is steeper then the development factor would be lower no? As the graph you showed is the % developed and the % dev = 1/cdf.

So would you not expect lower CDFs because we are closer to ultimate quicker with a new claims handling process? The only reason I can think why you expect higher development factors is if you look at it monthly and see the individual development factors you might see an uptick, but comparing the 12-24 cumulative development factor with and without the new claims handling process surely it should be lower after the claims handling process?
 
I wouldn't get too hung up on this Phos2, it's easy to 'fabricate' a story depending on whether you're looking a factors to ultimate, or % developed, or link ratios. Broadly speaking though, if the graph of % developed is steep, then claims are developing quickly at that 'age'. Similarly, if individual link ratios are high, then claims are developing quickly.
 
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