I just need clarification on how a particular step works with this method. I have two questions: 1) What exactly is a grossing-up factor? 2) In the online classroom video for average cost per claim reserving, at around 5:30, the video shows taking the grossing-up factor from accident year 2004, development year 1 and using exactly the same grossing-up factor for accident year 2005, development year 2. Why does it do this? The video seems to just do it, but not really explain why. Going through the core reading didn't shed much light on this, either. Could you please clarify? Thanks!
Hi 1) The grossing-up factor gives the proportion of the ultimate claim amount that has been paid so far. 2) The grossing-up factor from Accident Year 2004 Development Year 1 is actually what happened. The assumption is that if history repeats itself (ie the run-off pattern of the past can be used to predict the future), then the same grossing-up factor could be used for Accident Year 2005. Notice how, in the video, this historical grossing-up factor is then used to project the claims paid so far for Accident Year 2005 into the future (ie Development Year 2).
