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ST8 April 2010 Q5(iv)

L

Lisa Ps

Member
Hi,

In Question 5 (iv), to calculate the inflation factor that needs to be applied, the answer considers the midpoint of the ILF period and the midpoint of the policy period (1 July 2012).

Why do we not consider the midpoint of the payment dates of the claims arising in this new policy period, i.e 1 July 2015, since the ILF table considers loss costs?
 
That sounds reasonable enough Lisa. Alas though, they didn't give that information in the question. Mind you, if we assume constant inflation, constant settlement delays and constant reporting, it shouldn't matter. The important point is to understand whether the ILF is appropriate for the business you're pricing.
 
So it doesn't matter which period (exposure period or claims arising) as long as we state our assumptions?

because if I applied a different inflationary factor to the ILF tables, the answers would differ.
 
There's no hard and fast rule particularly Lisa, it just depends what you're given in the question. If you were to push me though, I think for more "traditional" questions (I mean Burning Cost questions, or frequency-severity questions), I'd be more inclined to apply inflation to the dates of payment, if I can. The examiners haven't been too concerned with this for ILF questions though, so don't worry too much.
 
Lisa Ps said:
Hi,

In Question 5 (iv), to calculate the inflation factor that needs to be applied, the answer considers the midpoint of the ILF period and the midpoint of the policy period (1 July 2012).

Why do we not consider the midpoint of the payment dates of the claims arising in this new policy period, i.e 1 July 2015, since the ILF table considers loss costs?
Click to expand...
looks like you're assuming liability claims take a long time to settle

policy is from 2011 to 2013

you say payment in 2015

does liability claim payments really occur 2 years after policy expiry
 
Yes Ethan, liability claims can often take many years to be settled. For example, claims that go to court can often involve and long a protracted legal battle to determine firstly who is liable and secondly how much the claim should be.
 
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