Run-Off Triangle

[RELA]

When to consider claims as paid, when to consider it as incurred?
In some questions it is mentioned that Claims are fully run-off by the dev year 2. This means that we will pay all in dev year 2 right?
So the ultimate should be the o\s reserve as we have to pay it now i.e in dev year 2.
But in solution they always deduct the amount before calculating reserves.

In CT6 September 2014 Q5, It was mentioned Claims Incurred - Even then they assumed it as claims paid and calculated o\s reserves after subtracting the paid claims.

 

[Steve Hales]

Hi. Claims fully run-off in Development Year 2 means that there won't be any more claims to pay after that year. It's not that the claims are paid in that year, but that there won't be any future claims payments.
Note that the Course Notes say "In general insurance, ‘incurred claims’ has a technical definition. In simple cases, however, it just
corresponds to the intuitive meaning of claims arising in a particular period." So the distinction between incurred and paid may not always be a precise one.
There's helpful question on page 30 of this chapter that covers the difference between claims paid and claims incurred. Let me know if that doesn't make sense. Thanks.

 

[RELA]

Hi Steve. Thanks for clearing the difference.
I now have a doubt that:
- what to do when in a question it's mentioned all the claims are fully run off by development year _
(No other info provided)
Do I assume that claims are paid or claims are incurred while calculating outstanding reserves?

 

[Steve Hales]

Paid. If there's no other information given, assume the simplest explanation and state what you've done.

 

[RELA]

Thanks for clearing the doubts Steve ✌