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exam 7 > Venter Factors > Flashcards

Venter Factors Flashcards

1
Q

what does Venter focus on (compared to Mack)?

Venter Factors

A

focuses on predicting incremental losses rather than cumulative losses

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2
Q

what is the first assumption of Mack?

Venter Factors

A 
expected value of incremental losses to emerge in next period is proportional to the total losses emerged to date, by AY,
assumes f(d) is constant across AY
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3
Q

what is the second assumption of Mack?

Venter Factors

A

AY are independent

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4
Q

what is the third assumption of Mack?

Venter Factors

A

variance of the next increment is a function of the age and cumulative losses to date

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5
Q

if future loss emergence is a constant plus a percent of emergence to date, what development should be used?

(Venter Factors)

A

a factor plus constant development

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6
Q

if future loss emergence is proportional to ultimate losses rather than to emerged to date, what approached is preferred?

(Venter Factors)

A

Bornhuetter/Ferguson

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7
Q

what are testable implications of the CL assumptions?

Venter Factors

A
  • significance of factor f(d)
  • superiority of factor assumption to alternative emergence patterns
  • linearity of model
  • stability of factor
  • no correlation among columns
  • no high or low diagonals
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8
Q

what alternative emergence patterns can the CL method be compared against?

(Venter Factors)

A

-linear with constant (f(d)c(w,d) + g(d))
-factor times parameter (f(d) * h(w))
-including CY effect
(f(d)h(w)*g(w+d))

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9
Q

how to test the linearity of the CL model?

Venter Factors

A

look at residuals as a function of c(w,d)

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10
Q

how to test the stability of factors in the CL model?

Venter Factors

A

look at residuals as a function of time

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11
Q

what is a general rule for testing the significance of factors?

(Venter Factors)

A

absolute value of a factor f(d) is required to be at least twice its SD to be considered significantly different from zero

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12
Q

how can a strict statistical test for the significance of a factor be formed?

(Venter Factors)

A

if distribution of factor is known - normal is fine, but positive skewness is often observed, so lognormal distribution may be more appropriate

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13
Q

if f(d) predicts cumulative losses rather than incremental losses, how do we test the significance of the factor?

(Venter Factors)

A

test the significance of the difference of the factor from 1

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14
Q

what test statistic do we use to test CL superiority to alternative emergence patterns?

(Venter Factors)

A

use SSE, adjusted for number of parameters used:

SSE / (n-p)^2

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15
Q

how is n defined in the SSE adjustment for parameters?

Venter Factors

A

number of predicted points in the paper - exclude the first column, as it is assumed to be given

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16
Q

what is the effect of using more parameters in CL model?

Venter Factors

A

advantage in fitting, but disadvantage in prediction

17
Q

what are alternative test statistics to use when testing CL superiority to other emergence patterns?

(Venter Factors)

A 
AIC = SSE * exp(2p/n)
BIC = SSE * n^(p/n)
18
Q

what is a drawback of the Akaike Information Criteria?

Venter Factors

A

tends to overparameterize large data sets

19
Q

what does alt. emergence pattern 2 state? (factor times parameter)

(Venter Factors)

A

states that next period’s expected emerged loss is a lag factor f(d) times the expected ult. loss amount h(w) for an AY

20
Q

how many parameters does alt. emergence pattern 2 use (parameterized BF model)?

(Venter Factors)

A

for complete triangle with m AY, model has 2m-2 params (twice as many as CL)

21
Q

how can we reduce the number of parameters in the BF model?

Venter Factors

A
  • full model assumes AY ult. losses are at different mean levels, each age has a different percentage of ult. losses
  • instead assume several AY in row have same mean level
  • assume subsequent periods all have the same expected percentage dev.
22
Q

what are other methods of reducing the number of BF params?

Venter Factors

A

-fit trend line through BF ult. loss params (uses just two AY params)
OR
-group years using apparent jumps in loss levels, fit an h to each group

23
Q

what is a special case of the BF method?

Venter Factors

A

CC method - sets h(w) = h, requires same number of params as CL method

24
Q

what would a factor-only model (no constant) show when graphing age d+1 loss against age d loss?

(Venter Factors)

A

roughly a straight line through the origin with slope equal to the dev. factor

25
Q

what would a constant-only model (no factor) show when graphing the age d+1 loss against age d loss?

(Venter Factors)

A

roughly a horizontal line at the height of the constant

26
Q

what does the BF method assume?

Venter Factors

A

expected emergence in each period will be a percentage of ultimate losses

27
Q

what do the CC and additive CL methods assume?

Venter Factors

A

years showing high or low losses to date will have the same expected future dollar dev.

28
Q

what is a test for linearity using residuals?

Venter Factors

A

scatter plot of raw incremental residuals (actual emergence - expected emergence)
if strings of positive and negative residuals in a row -> non-linear process may be indicated

29
Q

what is test 1 for stability?

Venter Factors

A
  • plot incremental residuals over time (i.e. AY)

- if strings of positive and negative residuals in a row -> dev. factors may not be stable

30
Q

what is test 2 for stability?

Venter Factors

A
  • look at moving avg. of a specific age-to-age factor

- if it shows clear shifts over time -> instability may exist, may want to use a wtd average of factors

31
Q

what does it mean when the moving avg. via test 2 for stability shows large fluctuations around a fixed level?

(Venter Factors)

A
  • does NOT mean we should focus only on recent data

- broader range of data is actually better

32
Q

what are we actually looking for when performing stability test 2?

(Venter Factors)

A

cases where the fixed level moves over time

i.e. - are there groupings of AY revolving around different means?

33
Q

what is stability test 3?

Venter Factors

A

state-space model: compares degree of instability of the observations around the current mean to the degree of instability in the mean itself over time

34
Q

what does stability test 3 help us determine?

Venter Factors

A

whether to use all of the data OR a weighted avg. that favors more recent year

35
Q

what are our options when the factors are unstable?

Venter Factors

A
  • use a weighted avg of the available factors, with more weight going to the more recent years (increases estimation errors by over-emphasizing some observations and under-emphasizing others)
  • adjust triangle for instability (e.g. Berquist-Sherman)
36
Q

what does Venter’s correlation test check for, and how?

Venter Factors

A

tests for AY independence by calculating the sample correlation coefficients for all pairs of columns in the dev. factor triangle, and then counts how

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