G.8 Evaluation of Techniques Flashcards
Benefits of using multiple estimation methods rather
than a single method to estimate unpaid claims
Seeing multiple estimates can help you better understand the range and distribution of possible outcomes, as well as the sensitivity of estimates to varying assumptions.
Examples of common diagnostics used to check
estimation methods for reasonability
Common diagnostics to review for reasonability would
include implied ultimate frequencies, severities, claim ratios, pure premiums, and unpaid severities.
2 reasons why unpaid claims estimates should be
reviewed between annual analyses
- The unpaid claims estimate should be updated if there has been a change in exposures.
- To see if claims are developing as expected as a diagnostic check as to whether unpaid claims estimates are reasonable.
Different options an actuary can take based on a
retroactive test if actual emergence exceeded expected
emergence
- Reduce the IBNR. For example, this might be appropriate if there was a speedup in reporting.
- Leave the IBNR unchanged. For example, this might be
appropriate if there was a large reported claim (and you
think future development will return to expected levels). - Increase the IBNR. For example, this might be appropriate if there was a deterioration in the claim ratio.
Formula to calculate expected reported claim
emergence
Expected Reported Claims between t and t + 1 =
(Estimated Ultimate Claims at t - Cum. Reported Claims at t) x (% Reported(t+1) - % Reported(t)) / (1
Why linear interpolation of development within
quarters is more reasonable than linear interpolation
within a year
Because development tends to be higher in earlier maturities and tends to decrease over time. As such, the linear interpolation assumption is usually not reasonable for prolonged periods of time, since most of the development will tend to occur earlier in the year than later in the year.
