Hi In the transition graph for the NCD model in Section 5.2,pls explain why there is a transition from State 3 to State 2- and not to state 2+. I am not clear with it.
Hello 2+ is the state where a policyholder has the 40% discount and did not make a claim in the prior year. 2- is the state where a policyholder has the 40% discount and did make a claim in the prior year. When a policyholder in state 3 has a claim, they need to move from the 60% discount level to the 40% discount level. They have to move to 2- because 2+ only contains policyholders on 40% discount without a claim in the prior year and these policyholders just made a claim. Hope this helps Andy
