R
r_v.s
Member
How do we calculate a reserve if we have two triangles - one of paid claims and one of incurred claims?
-
We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
In exam questions - you only have one or the other.
In real life my understanding is that incurred is used as it is less "lumpy" than claims paid.
Actually, if you go on to study ST7, you'll find that both are used in real life!
Incurred is indeed less lumpy and uses more information (not a bad thing!) - but if case estimates are unreliable then paid may be better, particularly if paids are very predictable. If the business is short tailed (like household, for example), then it may make little odds which one you use.
In practice, of course, given the ease of using spreadsheets, why not use both and look at the difference - maybe even take the average of the two!
Then of course there are a host of other methods that are used in practice. But I'll keep those a secret to try and get your interest for ST7!
Incurred is indeed less lumpy and uses more information (not a bad thing!) - but if case estimates are unreliable then paid may be better, particularly if paids are very predictable. If the business is short tailed (like household, for example), then it may make little odds which one you use.
In practice, of course, given the ease of using spreadsheets, why not use both and look at the difference - maybe even take the average of the two!
Then of course there are a host of other methods that are used in practice. But I'll keep those a secret to try and get your interest for ST7!