IBNER adjustment - RI pricing

[phos2]

I am looking at chapter 20 - page 18/19/20:

The IBNER development from the cedant’s large loss experience can be derived by arranging historical loss developments into development triangles aggregated by year and then comparing the (trended) incurred at time t for losses for year n reported at time t, with the (trended) incurred at time t + 1 for losses for year n reported at time t.

Could someone explain by what is mean by "year" in this case? Can it be underwriting year/accident year/reporting year?

The reason I ask is because the SP7 notes say that IBNER adjustments are made by grouping the claims by reporting year and make no mention at all of this t/t+1 distinction. Are the two methods equivalent?

 

[Katherine Young]

Can it be underwriting year/accident year/reporting year?

It doesn't much matter which origin year you use. The crucial thing here is the wording "for claims reported at time t". Think of it like this:

Take an incurred triangle at time t and compare it with time t+1, but you should exclude claims that were only reported in the last 12 months.

This way, you are analysing the development of reported claims from time t to t+1. By definition, this is IBNER.

Otherwise, the movement in the last 12 months will be a mix of both:

• newly reported claims (ie claims that were IBNR claims at time t)
• development of previously reported claims (this development is precisely the IBNER that you're trying to analyse)

The reason I ask is because the SP7 notes say that IBNER adjustments are made by grouping the claims by reporting year and make no mention at all of this t/t+1 distinction. Are the two methods equivalent?

It is similar yes, but if you construct a triangle differently (ie different origin years, or paid vs incurred or what have you) you'll end up with a different result.