Sahasrabuddhe

Question 1

Criticisms of current claims development practices (3)

Answer 1

1. does not vary trend across AYs
2. does not consider development period or CY trend
3. does not consider varying effect of trend on different claims layers

Question 2

Necessary claims data adjustments (2)

Sahasrabuddhe

Answer 2

1. common limit

2. cost level

Question 3

Connections b/w development factors at different layers and cost levels (2)

Answer 3

1. claim size models

2. trend

Question 4

Model assumptions along with complexity (5)

Sahasrabuddhe

Answer 4

requires:

1. selection of a basic limit
2. use of a claim size model
3. claims data is adjusted to basic limit and common cost level
4. claim size models at maturities prior to ultimate (generally not available)
5. triangle of trend indices

1-3 - simple, 4-5 complex

Question 5

Adjusted data at cell (i,j)

Answer 5

adj data = raw data * ( LEV(n,j) at common limit / LEV(i,j) at raw limit )

Question 6

Development factor for any layer and any exposure period

Answer 6

= age-to-ultimate for common limit * { [ LEV (X,i,n) / LEV (Y,n,n) ] / [ LEV (X,i,j) / LEV (Y,n,j) ] }

Y = starting/common limit
X = ending limit

ratio of ratios w/ratio at ultimate over ratio at t
exposure periods go from n&raquo_space; i
development periods go from j&raquo_space; n

Question 7

Development factor for any layer and any exposure period under simplified assumptions (layer lower bound at 0)

Answer 7

= age-to-ultimate for common limit * U / R

where U = LEV (X) / LEV (Y) at (i,n)
and R = LEV (X) / LEV (Y) at (i,j)

Question 8

Development factor for any layer and any exposure period under simplified assumptions (layer lower bound <> 0)

Answer 8

= age-to-ultimate for common limit * ( 1 - U ) / ( 1 - R )

where U = LEV (X) / LEV (Y) at (i,n)
and R = LEV (X) / LEV (Y) at (i,j)

Question 9

Decay model for R

Answer 9

Rj (X,Y) = U + ( 1 - U ) * decay factor

decay factor = 0 at ultimate

Question 10

Impact of a smaller claim size model parameter

Sahasrabuddhe

Answer 10

Smaller % of losses eliminated