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April 2008 Q5 Part 2

R

redzer

Member
Question
You have ten years of premium and individual paid claims development data, gross of reinsurance, for a particular product. Explain the steps you would
take to analyse and adjust these data for the purpose of reviewing the risk premium for that product.

There are 2 points from the Examiners report that I'm a bit unsure of what they are trying to say.

1. Adjust for delays between claim notification and individual payments until final settlement, both for claims occurring in the base period and for those
expected to occur during the exposure period of the new rates I really don't get what the Examiners are pointing out here. It sounds like you want to adjust the development pattern for what you might think happen in future rather than passing the DP solely on historic data. Would you have an example of how this is done?

2. Determine the full period of exposure covering the claims that can arise from the policies written under the new rates and adjust for the timing difference. Again, I'm unclear on what exactly they are talking about. Determine the full period? In most instances we are pricing the prospective year. Is that what they are talking about? How would one adjust for timing differences?

thanks,
R
 
Last edited by a moderator:
Hi Redzer, Have moved your query from the ST7 forum to the ST8 forum. You don't need to know this sort of stuff for ST7. But you can look forward to meeting it in the ST8 course!
 
Thanks, I just sat ST8 and this has been on my mind over the past few days! I posted it to the wrong forum.

R
 
redzer said:
I really don't get what the Examiners are pointing out here. It sounds like you want to adjust the development pattern for what you might think happen in future rather than passing the DP solely on historic data. Would you have an example of how this is done?
2. Determine the full period of exposure covering the claims that can arise from the policies written under the new rates and adjust for the timing difference. Again, I'm unclear on what exactly they are talking about. Determine the full period? In most instances we are pricing the prospective year. Is that what they are talking about? How would one adjust for timing differences?
Click to expand...
Yes, you're right. Basic pricing methodology is to look at your past data as a starting-point guide to what's going to happen in the future. Then use that predicted experience to set the price. The adjustments are to allow for how the future is going to differ from the past, eg for changes in the development pattern (your point 1), changes in the exposure (your point 2), and anything else you can find. There are loads of past paper questions that examine this, some numerical, and some more wordy.
 
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