Hi Ian I have a question when I redo the above mentioned question, part v, the calculation of the reserve for the large losses. When calculating the average cost per claim, the early year's claim has been reduced by claim inflation rather than increased. I don't understand why. The answer said it is due to large loss definition has not be adjusted by inflation. I think 1. The claim incurred in 1998 should be increased to the 2004 level by inflation because the same claim would be settled for more if happened in 2004. Surely you always inflate the past losses to current level? I remember in work I don’t inflate the open claims based on the assumption that the case estimates took care of it. Bear in mind I am doing pricing. Maybe reserving does it differently? 2. The large loss definition uninflated means the notification level 100k has not changed over time. This means the true notification level is higher in the past, therefore the true loss is lower?—to be honest I did not get this one. I know I must be wrong somewhere, please explain to me why. Thanks a lot.
See this thread for a discussion: http://www.acted.co.uk/forums/showthread.php?t=747 And you're right about the inflation being the wrong way round. The examiners are aware of this error in the solution and will soon (but not before Monday!) be posting a corrected version of the examiners' report.
