The incurred loss ratio here is calculated for each company as:
incurred claims / earned premium
With the calculation of incurred claims appears to be:
paid claims + change in o/s claim reserve
1) How do we know the claims paid during the year for each is in respect of claims that occurred during the last year? What's to say that it isn't payment on prior years' claims?
2) Why is the change in o/s claim reserve included?
3) Is the change in AURR also included in the calculation of incurred claims (although the assumptions suggest this would have 0 change anyway)? If so, why would it be included? The prior year's AURR should reduce to zero, as that business will be fully earned at the point of calculation of the balance sheet, while the current AURR is in respect of unearned premium for future years. Including either of those seems inconsistent with the denominator of GEP.
Thanks
Last edited by a moderator: Mar 26, 2015