Question 3.2 and 3.6

[Cheng]

Hi all,

Can someone please explain qs 3.2, i don't really understand the solution given. For example, for (a), how does a 2.5% increase in ult claims for 2011 and a 0.5% decrease in ult claims for 2010 result in an increase of outstanding claims by ard 3%?

Qs 3.6: When doing the inflation adjusted average cost per claim method,

1) why do we need to adjust the projected incremental number of claims settled? (as suggested in the solution)

2) instead of the method suggested in the solution, can i estimate the outstanding claims reserve by
i) projecting the average claims paid (in 2011 money terms) for each accident year (i.e. the 2nd half of the triangle) using the chain ladder method
ii) and then multiply the projected average claims paid by the projected incremental number of claims settled, to obtain the expected incremental claims paid
iii) then only adjust the expected incremental claims paid for inflation

Thanks in advance!

 

[jensen]

Is this from the Q&A Bank? Or Assignment X? or in the chapters?

 

[Coralie Clarke]

Hi Cheng,

Q3.2(a) - the figures are all correct (although all rounded to the nearest ½%). You need to make sure you're comparing like with like though.

For example, the 2½% increase in ultimate claims for 2010 is equivalent to a 5% increase in the outstanding claims, and the ½% decrease in ultimate claims estimated for 2009 is equivalent to a 2½% decrease in the outstanding claims for that year.

The overall estimated increase in the reserve across all years is just over 3%, as stated. This takes into account the +5% and the -2½% from above, as well as the largely unchanged reserve for 2008.


Q3.6 - I'm not sure I understand your first question. We are projecting the numbers of claims, but not adjusting them.

The average cost per claim method is not uniquely-defined, so there will be more than one way to approach this. Try both methods and compare your results...


Coralie