Could you explain the examiners approach to trending - why do they inflate claims to the mid point of 2010 (e.g year 2005, if we assume claims occur half way then we should project inflation to the end of 2010 (average claim date 2010)i.e. we would multiply by a factor of (1+i)^5.5, whereas in the solution the examiners have multiplied by (1+i)^5 Also, should 2009 not be adjusted to bring it to a Full year, data is as at 31 Oct 2009, so we only have 10 months, I would have adjusted both claims AND exposure to bring to full year values. Please could someone explain these two points to me. Thanks,
You need to inflate your claims data from the average date of claim payment in your historical data to the average date of claim payment for claims that will arise from the period in which the premium rates you are deriving will apply. In these sort of questions you can usually assume reporting and settlement delays are unchanged as long as you state that as one of your assumptions in your answer. So for the 2005 accident year, the average accident date will be mid-2005 and for the 2010 accident year for which we are calculating the premium rate, the average accident date will be mid-2010. Assuming no change in reporting and settlement delays, you therefore need to adjust the 2005 figure by 5 years worth of inflation. You dont need to make any adjustment for the fact that the data is at the end of October because the development patterns you have been given apply to data at the end of October in each case (10 months, 22 months etc). Be careful, all years' data are as at the end of October 2009 and not just 2009. For example, the 2005 incurred claims will be to the end of October 2009 (ie 58 months developed).
Hi, Your answer doesn't explain why in the solutions they have not converted from incurred losses to ultimate losses. Why have they not converted to ultimate? For the 2009 YoA TPBI claims this makes a huge difference... The specimen answer also doesn't make any allowance for inflation being from 5 months into 2009 to 6 months into 2010 (i.e. inflation for 13 months rather than 12 which I grant you doesn't make a big difference).
Shillington In the solutions they have converted from incurred to ultimate losses. The first table Projected Claims Costs (before claim inflation allowance) does precisely this. For example for 2009 124=(40/0.7+30/.45) and 67=20/.3
