In new CP3 X series assignment 3 , The question says " Claims incurred equals claims paid during the year plus the increase in outstanding claims reserves." It does not clarifies whether Incurred but not reported claims are included or not in incurred claims. Do we need to assume this . Otherwise how do we explain the reserving methods which effectively calculates the IBNR reserves. Can some body explain/
The general idea behind CP3 is that hopefully you won't have to 'think too hard' about the technical content, so if you find yourself in this situation, you might be going down the wrong route and should look to keep things simple. Everything you need should be in the question. In this case, the usual definition of claims incurred includes IBNR, because outstanding claims reserves would normally include IBNR. If IBNR was not included, it would have said 'outstanding reported claims reserves'. When explaining the reserving methods, concentrate on the formulae given - these are your biggest clue as to how to explain them. Good luck!
