A
Adithyan
Member
What is meant by inconsistencies in the treatment of gross and net claims estimates? (In page 11 of the chapter)
Below is the answer for 16.3
Actual claims development is slower than that suggested by the use of the basic chain
ladder. (How is this known? )
If no adjustment is made to the basic chain ladder method, then the reserves
calculated will be an underestimate of the amount required. If the reserves are also
discounted, then the payments will be assumed to be made earlier than will eventually
be the case, and will therefore be affected to a lesser extent by discounting. This will
offset to some extent the inaccuracy in the basic chain ladder model. A revised model
should take account of both of these factors. (Please explain)
Below is the answer for 16.3
Actual claims development is slower than that suggested by the use of the basic chain
ladder. (How is this known? )
If no adjustment is made to the basic chain ladder method, then the reserves
calculated will be an underestimate of the amount required. If the reserves are also
discounted, then the payments will be assumed to be made earlier than will eventually
be the case, and will therefore be affected to a lesser extent by discounting. This will
offset to some extent the inaccuracy in the basic chain ladder model. A revised model
should take account of both of these factors. (Please explain)