Order of development

[jensen]

Hi

I understand we have to develop the claims triangle and adjust for effects of trend and inflation. Does it matter the order in which it was done?

My approach was to adjust first, then develop but some of the ASET solution show otherwise.

Thanks.

 

[Pede]

depends what you mean.

CT6 covers the inflation adjusted chain ladder, if that's what you mean (where you adjust for inflation first, then do the projection).

But if you mean as part of a pricing exercise, then it depends what data you've got. normally i'd inflate first, then develop. But hopefully my development pattern has already been adjusted for inflation.

 

[Sherwin]

Hi

I understand we have to develop the claims triangle and adjust for effects of trend and inflation. Does it matter the order in which it was done?

My approach was to adjust first, then develop but some of the ASET solution show otherwise.

Thanks.

Although it doesn't matter in primary insurance pricing, it does in reinsurance pricing especially excess-of-loss reinsurance.

 

[Sherwin]

... But hopefully my development pattern has already been adjusted for inflation.

I think they are two different things. The loss development pattern may take into account some trending factor, but you still need to do loss trending separately in the pricing process.