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Query on incomplete triangle

S

StartedThinking

Keen member
Hi,
I have a query on incomplete triangle (latest diagonal being incomplete).
Let us suppose that we have a cumulative incurred triangle (annual triangle) where the latest diagonal has only 8 months data in it. I thought to apply 8-12, 20-24, 32-36 month development factors respectively for the latest diagonal from the previous years data, which gives me an yearly triangle - now being used as input triangle, for which I want to apply Chain ladder method for Ultimate.

But my friend says that we should use 8-20, 20-32, 32-44 etc development factors from the previous year triangles and develop them to ultimate, But I am not convinced with it. Can you please help me understand which is the better methodology to use --- from reserving viewpoint and if possible from pricing viewpoint.

Thanks in advance.
 
Probably the most straight forward / common thing to do would be to "gross-up" the latest diagonal in some appropriate way (eg increase pro-rata) to make it annual as per the other diagonals and then apply the chain ladder method as normal to annual triangles.

As ever, what you might do in practice would depend on the specifics of the class concerned, eg if seasonality was a big issue a simple pro-rata adjustment would unlikely to be appropriate.
 
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