How can you tell whether to inflate first and then develop to ultimate or develop to ultimate first and then inflate? Eg ST3 April 2007 Q4 part i
Depends largely on what your development pattern is of (inflated or un-inflated claims). With the right assumptions, and the right data, either method could work better in different circumstances.
Completely agree with that it depends on what data you have been given. However I'm having trouble trying to work out why one needs to be done before the other in ST3 April 2007 Q4 part i. I don't understand the logic behind the method and appreciate that there is not a single method that will work well in every situation but hopefully someone can tell me why the solution is as it is in that question so I can work it out for other questions with different data.
it is the easier way in this particular question to develop and then trend! the same q is in the specimen paper and I tried it the other way too and found that it took much longer time to do! this made more sense probably because the inflation rates have been given!
In this question I would recommend projecting before trending as the development pattern you are given is at the end of October each year.
Thanks for the responses! I'm afraid it still doesn't make sense! I've found another exam question where the opposite is done ie inflate and then develop to ultimate and the dates of the development pattern given are at the end of March each year. Please see question Q9 ST8 April 2013
In reality because both adjustments (trending and develop to ultimate to allow for IBNER and IBNR claims) are multiplicative it doesn't really matter which order you apply them in. You will still get the same answer. In other words a * b = b * a However, sometimes it helps to think of them in a certain order as it helps you to work out whether you need to adjust the factors in any way. Be careful though in some cases the order is important so you need to read the information in the question very carefully to understand what the data you have been given is (eg Subject 9B, 1991, Paper 1, Question 1).
