SA3 April 2012 Question 1.ii

[Shradha]

Hello,


In Answer to April 2012 Question ii of 1 where we are asked :
Describe why an actuarial department might adjust claims data for large claims and catastrophes for the purposes of:
(ii) Reserving

A significant problem could be that the catastrophe claims if left in the data could bias the average occurrence date, E.g. a storm occurring at the end of an accident year may result in the year being less mature than normal as claims arising from storm damage tend to be reported quickly and therefore distort the reporting patterns

I'm not clear why would the accident year be less matured. I would expect it to be showing falsely more matured as cat claims are reported faster. Could someone please explain?

Thanks a lot!

 

[Darren Michaels]

Youre correct that on a reported basis the year would be more mature than normal due to the quick reporting of the storm claims, but on a paid basis it would be less mature than normal because the storm occurred at the end of the year and so a large proportion of the claims are unlikely to be paid (even though a lot of cat claims are generally settled quickly). In other words, the paid to incurred ratio would be distorted by the storm event.

 

[Shradha]

Thank you very much for the explanation. This does make sense.