In average cost per claim method of run-off triangles, when incurred claims cohort is given, what we usually do at last is add the future projected claim amounts from lower right hand side triangle. And when paid claims cohort is given, we usually subtract already paid claims from future projected claim amounts and add them to get the outstanding amount in answer. But in one case (IFoA Sep 2014 question 5), the question has mentioned "incurred claims", but in the end they did subtract paid claim amounts from future projected claims. Why?
Same thing I have noticed with Q8 (ii) of IFoA Sep 2009 paper. In Bornhuetter-Ferguson method, when incurred claims cohort is given, are not we supposed to calculate ultimate liabilities and then add them up to get the total O/S reserve? They have worked in the solution in such a way which should be followed in case of "paid" claims i.e. they added up only the emerging liabilities to get the total reserve amt. Why?
Thank you for confirming it, Sir. How many marks do they deduct if I solve the steps right but at the end screw up the ultimate result (for this plus-minus confusions) ?
If there's a mistake in the question then just write that in your answer and say "assuming the question means claims paid" and give your answer. If there's not a mistake in the exam and you do the wrong thing on the last step then typically it's 1 mark lost.
