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Inflation adjusted Bonheutter Ferguson run off triangle

M

M Muller

Member
I refer to question 9 (ii) of September 2005's CT 6 paper.
I do not understand why there are 3 numbers in the row "outstanding amounts for 2004 policies" (on examiner's report). For all the other Bonheutter Ferguson triangles that I have done, when they ask to calculate outstanding claims for 2004 specifically, I only calculate 1 column's answers (when I compare to the method explained in the notes).

Can anyone please explain why there are 3 amounts and not only 1 for 2004? I compared this question to the one in the April 2005 paper where they also only asked us to calculate outstanding claims for 1 year and I do not see how the 2 answers correspond.

I understand how to allow for inflation in all the other triangles but this one seems a bit more difficult. Does anyone perhaps have an easy way or method that I can apply when calculating the inflation adjusted Bonheutter Ferguson?

Thank you!
 
Hello

In this question there are 3 entries in the 2004 row relating to the outstanding development years 1, 2 and 3.

As we are asked to adjust for inflation in this question we need each development year's entry split out so that we can apply the appropriate inflation adjustment (ie 1 year of future inflation for the development year 1 number, 2 years of future inflation for the development year 2 number etc).

We then sum these individual, inflation adjusted numbers at the end to obtain the outstanding reserve amount needed.

The April 2005 question you refer to does not ask for an inflation adjustment. In this case it is sufficient just to calculate the one final row entry.

Allowing for inflation under the Bornhuetter-Ferguson method is essentially the same as allowing for it under any of the other methods:

1) You need to make sure you start with incremental data.
2) You then need to adjust this incremental data for past inflation.
3) You then need to accumlate the data.
4) You then calculate the outstanding reserve amounts needed for each development year (here using the B-F approach).
5) You then need to disaccumlate the data to get incremental amounts again.
6) The projected incremental data must then be adjusted to allow for future inflation.
7) Finally the projected, inflation adjusted, incremental data can be summed to give the total outstanding claims reserve needed.

I hope this helps!

Elizabeth
 
Thank you this helps a lot! It is amazing how you can miss a simple thing - like knowing which inflation to allow for which development year.

So just to confirm, if they haven't asked us only to calculate the outstanding claims for 2004 but for all years, I would have done exactly the same for 2003 etc? But for 2003 I will only have development year 2 and 3 right?

I appreciate your response, thanx!
 
Yes - if you were doing the earlier years too you would have progressively less development years as you go up the table. It sounds like you've got the hang of it now!
 
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