Q&A4 Q8 (b)

[Leala]

PART B

If sales tax increased to 17.5% in 2004 but was ignored, the solution says, to overcome the problem by adjusting the prior year payment before 2004 as if they had included this higher rate of tax - why is this?
Could we not just ignore it the whole time?


PART C

It says to overcome settlement delays, could re-calculate 2005 diagonal figures inflated to what they might have been if settlement patterns were normal BUT would this not reduce the claim figures then as if settlements were faster (reducing the claims). So when your assuming they are faster, but they actually were slower to develop, you're over reserving because your paid claims are more in the triangle, but in 'real life' they're less and so really your underreseving?

Thanks a lot

 

[Ian Senator]

Part (b):

Yes, that's fine. The key aim is to get consistency across the triangle so that the development pattern isn't messed up.

Part (c):

Not sure I quite follow what you're saying entirely, but again the aim is to adjust the triangle so that the development pattern is not distorted (unless you want it to be for the future...). So put the 2005 diagonal back to what it would have been before the change. Remember it's not so much the actual figures in the triangle that are important, it's the development pattern.