Hi, I'm having difficulties understanding the solution to case study 1 part (iv) for the average claims method... Any ideas?
Can you a be a bit more specific about which bit you're having problems with? Then let's hope another SA3 student can give you some ideas...!
There are a number of things that are unclear to me: General Method 1) Does the open number of claims include IBNR # (normally it doesn't unless the question assumes that we have already calculated that) or is the IBNR # included in the acpc factor? Specific example where sales tax is introduced 1) I don't understand what it means when it says that the acpc factors for the current year, the next year etc will be changed by the 15% tax to different extents. Shouldn't the method have a single acpc factor for each origin year? 2) Why not just increase the acpc factors by 15% and deduct the paid to date (before the tax date) which are increased by 15%? Thanks!
General method: The way I read it, it's the number that includes the IBNR, then you multiply this by the severity (factor). The question says that each origin year has a different factor, so this is what that part of the solution is referring to. You have to look at each origin year and each payment year separately, as the factors vary by origin year, and the effect of the 15% hike will depend on when each actual payment is made.
Thanks. Why does it matter at which payment year the payment is made? Won't all future payments be affected by the same 15% increase? I think this is the point that is confusing me.
Because it's only future claims payments that are increased by the 15%. So for each claim that originates in a particular year, you need to split the payments into pre- and post-implementation date. You could of course combine all the post-payments for one particular origin year (which is what I think you're getting at) - but then this will vary for each origin year, so I think it's easier to explain it just by saying split all the payments by origin year and payment year, in order to work out the adjustments.
Part (iii) - New Admin System Hi Average Claim Size Method I don't understand why we need to change all the acpc factors used at the previous year-end to allow for the reduced number of claims recorded as outstanding and the total payments made on the closed claims... ...how are the acpc factors calculated for each origin year?
The factors are mutliplied by the number of claims to give a total incurred amount. With claims being settled earlier, there will be lower total outstandings, so we need to adjust either the future numbers or the factors themselves.
Thanks Ian Why do you need to change all the factors used at previous 31 December rather than current year end as new system introduced in the last year?
Think that's just how you interpret 'previous'. The figures you want to use are the old ones adjusted for the change.
